The number of Colorado homeowners enrolled in the required first stage to reduce their mortgages under a federal program fell by 28.7 percent in July from June, according to a government report released today.
There were only 3,329 Colorado home owners participating in “active trials” in the Home Affordable Modification Program in July, a 28.7 percent drop from the 4,670 in June. Homeowners seeking to reduce their mortgages in order to avoid foreclosure, must first enroll in the active trials portion of HAMP, before they can receive permanent modifications. There were 6,124 Colorado homeowners in the Permanent Modification program in July, slightly more than an 8 percent increase form the 5,656 in June.
Documents upfront, reduce later dropouts
The number of people in the first stage of the program, both nationally and in Colorado, has been dropping since the U.S. Treasury and the U.S. Department of Housing and Urban Development, required more upfront documentation before homeowners could be accepted into the trial program, which lasts at least three months. The new rules went into effect on June 1, but many loan servicers began implementing the changes even before June.
The government wants lenders to pre-screen applicants to increase their chances of being accepted into the permanent modification program. The $75 billion program was launched in March 2009, and many homeowners ended up being in the trial program for many months, only to be told they do not qualify for the permanent modification program.
Programs not cutting the mustard
Ron Woodcock, a broker with RE/MAX Southeast, questions the value of HAMP and a sister program, HAFA, or Home Affordable Foreclosure Alternatives.
“If you ask me, HAMP and HAFA, are not good stuff,” Woodcock said. “As they get tougher on the criteria for the trial modifications, it may lead to higher foreclosures.”
For more than two decades, first in Florida and now in Colorado, Woodcock has specialized in selling distressed properties, either foreclosures, or increasingly, short sales. A short sale is when a lender accepts less than the amount of the mortgage.
“I’ve been doing a lot of short sales for people who were in trial mods,” Woodcock said. “They were denied into the permanent program. They were in HAMP or something similar. If they could not maintain their payments, they are back to square one.”
Consumers: Many options available
Shannon Peer, director of Housing Counseling at Brothers Redevelopment, which manages the Colorado Foreclosure Hotline, said when HAMP first began under the umbrella of the Making Home Affordable Program, lenders were basically enrolling people in the trial program over the phone.
“So a very large percentage of the pool accepted into the trial program could not move on the permanent modification,” Peer said. “Now, people have to prove to them with some documentation that they are good candidates for the permanent modifications.”
Yet, HAMP does not work for a lot of people, because of the shift from people saddled with toxic loans that they couldn’t afford to more basic economic woes, he said.
“The root problem for the majority of the people now is unemployment or under-employment,” Peer said.
And this month, yet another federal program was launched, which is designed to help people keep their homes who are unemployed.
“But usually you have to start with HAMP,” Peer said. “That is why it is important for consumers to speak with HUD-certified counselors. When they are talking to the loan servicers, they will ask what the borrower’s ‘options’ are, not his option.”
He said homeowners who are facing losing their homes should be willing to roll up their sleeves, and not expect that their lender will tell him all of his options. “A lot of lenders will tell you several options, but you can’t be assured that they will tell you everything that is out there,” Peer said. Nationally, more than half of the homeowners in canceled trials receive alternative modifications, become current, or pay off the loan. Insufficient documentation, missed trial payments or mortgage payments already less than 31 percent of the home owner’s income are the man reasons for cancellations.
Colorado did slightly better, as a percentage drop, than the nation as a whole. Last month, there were 255,934 homeowners in the Trial Modification program, a 29.7 percent drop from the 364,077 in June. So far, 616,839 trial modifications have been cancelled across the country, while only 12,932 permanent modifications have been canceled. There are currently 421,804 permanent modifications, while there are an estimated 3 million delinquent loans and almost 1.5 delinquent borrowers, who could potentially be eligible for HAMP.
Billions saved
And for those who qualify, the savings are significant. The median monthly payment for a homeowner receiving a permanent modifications dropped to 36 percent to $839 from $1,426, a $513 monthly savings. The aggregate reductions in monthly payments for borrowers in active trials and permanent modifications totals more than $3.1 billion.
