(CN) – A federal program created after the 2008 financial meltdown to assist struggling homeowners has ended, and a new report shows it helped nearly 3 million Americans keep their homes.
The Home Affordable Modification Program, or HAMP, was one of the largest components of the government's Making Home Affordable program, launched in April 2009 to aid struggling homeowners in the wake of the financial crisis.
HAMP ended Dec. 31, 2016, and a report released in late March says 2.8 million people received permanent loan modifications. The report also showed that the number of homeowners who are more than 30 days delinquent on their mortgages dropped from 6.1 million in 2009 to 2.7 million in December 2016.
The program was designed for the nation's largest banks to offer homeowners at risk of foreclosure a modified loan that is in line with their monthly income. Homeowners applying to HAMP had to show financial hardship and the ability to make reduced monthly payments.
HAMP encouraged participating mortgage servicers with financial incentives to modify loans so homeowners could avoid foreclosure. The program had specific eligibility requirements for homeowners and included strict guidelines for servicers, and encouraged private lenders to modify mortgages at no expense to taxpayers.
According to the latest Treasury Department report, families who participated in HAMP reduced their monthly mortgage payments by a median of $530 a month.
HAMP was part of the Troubled Asset Relief Program, or TARP, which addressed the nation's financial problems with help in the financial markets, the auto industry, and even monitoring executive compensation at companies assisted by the program.
TARP cost the federal government $436 billion through October 2016, according to the Treasury Department. Congress had authorized up to $700 billion for TARP.
America's financial crisis devastated the mortgage industry, and mortgage servicers were not well-equipped to handle the number of foreclosures weighing on the housing market, the report said. Mortgage servicers did not have the systems, operating capacity or incentives to engage with homeowners on a large scale and offer meaningful relief from unaffordable mortgages. And before HAMP, there was no standard approach among loan servicers or investors for how to help homeowners who wanted to keep making payments but needed assistance.
HAMP took aim at struggling homeowners in several ways: principal reductions, interest rate reductions, loan forbearance, and unemployment issues.
Unemployed homeowners could receive 12 months of forbearance, during which mortgage payments were reduced or suspended, allowing them to find jobs without fear that they would lose their homes to foreclosure. California dominated participation in the unemployment program at 24 percent, followed by Florida and Illinois at 7 and 5 percent, respectively.
HAMP saved homeowners $48 billion in monthly payments, created $24 billion in principal loan reductions.
The median property value of HAMP participants is $175,000, and their median monthly income is $4,011, according to the report.
Not everyone who applied for a loan modification received one. But of all the trial modifications that were accepted, 53 percent resolved their delinquency. Twenty-three percent of the loans ended in foreclosure, the report said.
Some of the nation's largest banks and loan servicers participated in HAMP, including Bank of America, JPMorgan Chase, Wells Fargo, Ocwen Loan Servicing, Select Portfolio Servicing, CitiMortgage and Nationstar Mortgage.
Since HAMP was a voluntary program, some banks like Wells Fargo did their own modifications outside of the program. According to Tom Goyda, senior vice president of consumer lending communications for Wells Fargo, the bank has done more than 1 million mortgage modifications since 2009 – most outside of HAMP.
“HAMP provided payment relief to millions of borrowers and also helped bring standardization to the modification approach across the industry,” Goyda said. “Fortunately, delinquencies are down significantly and home prices have rebounded in most regions, so fewer people need assistance to avoid foreclosure.”
Goyda said even though HAMP has been phased out, Wells Fargo will continue to help homeowners who are struggling to keep their homes. He said Wells Fargo takes the HAMP process even farther, by offering principal reductions and loan forbearance when appropriate.
HAMP helped standardize industry-wide loan modifications right after the financial crisis, but the process hit a snag early. When the Treasury Department launched HAMP in 2009, homeowners were able to apply for a modification without documenting their income, which led to a large number of modifications being canceled after a trial period.
Beginning in June 2010, mortgage servicers were required to verify a homeowner’s income prior to offering trial modifications, which substantially reduced the number of cancellations. A total of 674,768 trials started before June 2010 were canceled, while 790,552 trial modifications have been canceled to date, according to the report.
Although HAMP helped stabilize the housing industry, the market has not completely rebounded from the recession. According to a new survey from the Mortgage Bankers Association, mortgage applications in the last week of March decreased 0.8 percent from one week earlier, and the refinance segment of the market is the lowest it's been since October 2008.
The refinance share of mortgage activity in mid-March decreased to 44 percent of total applications, from 45.1 percent the previous week. The survey covers over 75 percent of all U.S. retail residential mortgage applications.
Now that HAMP has ended, private industry is working to develop a similar streamlined system to help consumers and mortgage investors.
The Mortgage Banking Association has developed a program called “One Mod,” a proposed successor to HAMP.
The One Mod program is designed to draw on the experience of lenders who are familiar with HAMP to develop universal modification principles.
One Mod was developed through a loss-mitigation task force within the Mortgage Banking Association and includes representatives of 20 companies. It offers at least a 20 percent payment reduction for eligible borrowers and reduces the excessive documentation requirements that have caused hardship for HAMP applicants, according to the association. The task force is co-chaired by Alex McGillis of Quicken Loans and Erik Schmitt of JPMorgan Chase.
“The task force recognizes that the industry, borrowers and investors need a successor to HAMP that is consistent and can be widely scaled," Pete Mills, senior vice president of residential policy and member services at the Mortgage Banking Association, said. "One Mod will go a long way toward offering deep payment relief for struggling homeowners and a positive economic outcome for investors.”
TOTAL PERMANENT LOAN MODIFICATIONS (since 2009)
Bank of America: 111,138
JPMorgan Chase: 170,571
Select Portfolio Servicing: 150,506
Wells Fargo: 212,502
Source: U.S. Treasury
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