What is HAMP and why is the program not working as contemplated?

HAMP is a program introduced in February 2009 by the Obama Administration’s comprehensive Financial Stability Plan during the housing market collapse to help homeowners modify and/or refinance their existing mortgage.  HAMP is an acronym for Home Affordable Modification Program.  It is designed to help those homeowners with an economic hardship modify the terms of their mortgage so that it becomes more affordable, manageable and thereby helps avoids a foreclosure.

To qualify for the program the following criteria must be met:

1)  The mortgage is for your primary residence.

2)  The amount of your first mortgage is equal to or less than $729,750.

3)  You have a qualified hardship.

4)  The Mortgage was obtained before January 1, 2009.

5)  The payment on your first mortgage (including principal, interest, taxes, insurance and   

     homeowner's association dues, if applicable) is more than 31% of your current gross

     household income.

 

Trial Period vs. Permanent Modification

Permanent mortgage modification rose to about 31,000 in November, up from about 26,000 in October.  That brings the total active permanent modifications to just over 500,000 since the programs inception.  Considering how slow new modifications are being offered, it is clear that the program designed to prevent three to four million foreclosures will be lucky to hit even 25% of its target.
Let's look at trial modifications.  A trial modification is when the lender provides a temporary trial periods in which modified payments are to be made for several month (usually 4-6), and if paid timely, should be made permanent.  Trial modifications peaked at nearly 160,000 in October 2009, but have declined ever since.  The number of new trial modifications increased to about 30,000 in November, up from about 24,000 in October. 

With so few active and new trial modifications, it will be harder for this number to increase in the future.  18,000 modifications were cancelled in November 2010.  This is mostly due to loan servicers finally having worked through most of their backlog of "aged trial modifications" which were modifications that were active for an extended period without being cancelled or made permanent.  Many were ultimately cancelled, which is why there was a flood of cancellations from March through July 2010.

So what’s next in 2011 for the program? 
All indications are that foreclosures are expected to rise, even though HAMP appears to be winding down and comprehensively not having the teeth to compel lender compliance as envisioned. 
As of December 2010, more troubled homeowners are dropping out of the Obama Administration's HAMP program, which has been widely criticized for failing to help more homeowners keep their homes and modify “bad loans” to more traditional long- term fixed-rate mortgages.

On December 22, 2010, the Treasury Department said that about 774,000 homeowners have dropped out of the program as of last month.  That's about 54 percent of the more than 1.4 million people who applied for a modification.  As noted, this program is intended to help those at risk of foreclosure by lowering their monthly payments. Borrowers start with lower payments on a trial basis, but for reasons not made very clear or public, lenders have not converted them into permanent loan modifications, causing trouble for the program as a whole.

Foreclosure filings fell by 21 percent last month, their largest monthly decrease since 2005.  However, the government warned that this decrease is only temporary.  Lenders are expected to revise and resubmit paperwork in the coming months to reignite their foreclosures. 
Borrowers applying for HAMP relief are faced with a bureaucratic black hole, with banks losing documents, failing to return phone calls, and simply not keeping track of all documents submitted. 
Lenders are blaming homeowners for failing to submit needed and requested documentation.  Lenders are often times operating on a dual track, where on one hand they are attempting to modify a loan, and on the other hand prosecuting a foreclosure on that property.

A homeoner should be extremely careful when entering into a trial modification.  There is no guarantee that the terms will become permanent.  Thus the bank is collecting payments for several months (from thousands of borrowers) and then for frivolous reasons is not making that modification permanent.  At the same time, continues to prosecute the foreclosure lawsuit.  Such behavior can be classified as violating the lenders obligation to operate in good faith and conduct fair dealings with the borrowing public.        

Homeowners accepted into HAMP can receive lower interest rates and can repay their loans over a longer period of time.  Those who remain in the program on a permanent basis see their monthly payments cut on an average of about $500.

If you or someone you know is dealing with a potential foreclosure of their mortgage, it is in your best interest to speak to a competent lawyer in your specific jurisdiction.

By: Eran D. Grossman, Esq. (212) 227-6755