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In December, the number of people accepted into the first stage of the federal government’s largest housing program rose from the previous month, the only time that occurred in 2010, shows an analysis by InsideRealEstateNews.
While the percentage gain in December from November was meager – only 1.2 percent – some housing experts said that might be the first indication that the Home Affordable Modification Program, or HAMP, is showing signs that its track record of helping people remain in their homes is finally starting to improve. Others say the program is not working and actually hurts distressed homeowners by creating false hope Nationally, some Republicans last week called for scrapping HAMP, especially in light of the fact the private banks are helping almost four times as many people.
Active trials
In December, there were 1,876 Colorado homeowners accepted into the required “active trials” part of HAMP, compared with 1,853 in November. In December 2009, there were 11,170 people accepted into the active trials, but that was before the government required lenders to pre-screen applicants to try to increase the odds that people would not continue to make payments once in the permanent program, following criticisms that as many as 50 percent or 60 percent of the homeowners were dropping out of the permanent programs. That aspect of the program seems to be working, as nationally, almost 85 percent of the people remain in permanent modification programs.
“The fact that they are showing any increase – whether it is 1 percent or 10 percent – it shows that HAMP is working for those it is suited for,” said Zachary Urban, director of housing counseling at the Adams County Housing Authority.
On a national basis, 521,630 are in the permanent modification program, with 1.4 percent, or 7,369 of them, from Colorado. The Obama Administration was hoping to help 2 million to 3 million homeowners with HAMP.
HAMP helps many
“I think HAMP has tremendous value as a safety net to catch those for whom a private label loan mod from a bank is not appropriate,” Urban said. “Some people say it is “only” helping 500,000 people. That is not a small number. That is 500,000 people who are able to to pay on their obligations. Let private industry do what they can, also. If HAMP hurt the lender, I would say scrap it. But HAMP helps the lender,” as foreclosures are extremely costly for banks.
Nationally, the median monthly savings for someone in the permanent program is $527.10, or 37 percent lower than the median payment before the the modification. Since the program began in March 2009, modification savings have exceeded $4.5 billion.
Meanwhile, another 235 people entered the permanent modification program in December from October, the biggest month-to-month increase since 933 in March to April. However, in the early spring, far more people were being accepted into the program before the Treasury told loan servicers to pre-quality and tighten requirements to be accepted into the program, to reduce the drop-out rate. Servicers handle the monthly mortgage transactions, such as collecting principal and interest payments.
Shannon Peer, head of housing counseling at Brothers Redevelopment, which operates the Colorado Foreclosure Hotline (1-877-601-HOPE), said that it is positive that the number of people entering the permanent program has been fairly consistent, and growing slightly, since late summer and the fall.
He also agreed with Urban that is is “good news” to even see a slight increase in the number of homeowners being accepted into active trials.
HAMP sparked bank programs
“I still think that HAMP served a great purpose,” Peer said. “I can tell you that when HAMP started, we were not seeing the number of properties being helped by private banks that we are now seeing. It seems that HAMP really helped spark alternatives on the private side.”
Peer said he probably would rather see HAMP fine-tuned than scrapped. One problem is that much like fighting last year’s war, by the time any program is ramped up and rolling conditions may have changed. For example, when HAMP was created, it was to address homeowners grappling with bad loans they could not afford, while the No. 1 cause of foreclosures today is unemployment or income loss.
Peer said one idea might be to look at the best practices and most effective banking solutions, and then incorporate them into HAMP. On the other hand, he said when counselors look at the banking alternatives, they do not look that much different than what HAMP provides, he said. With HAMP, 100 percent of the time interest rates are reduced; the term is extended 58.3 percent of the time; and there is a principal forbearance in 30.3 percent of the cases. Banks typically instruct their clients to go through HAMP first, before they see if they can get them into a non-government program, Peer said.
Also, Peer said there “seems to be a misconception,” that the program has been a boondoggle wasting billions of dollars of taxpayer’s money. “The truth is that the government has allocated a certain amount of money to pay servicers and pay others fees to banks that participate in the program. If fewer people are accepted into the program, that means that the money is not going out the door.”
Brokers: Loan mods little help
Ron Woodcock, a broker with RE/MAX Southeast, said he finds very few homeowners being helped by HAMP or any other loan modification program.
He currently is working with three clients who are facing foreclosures, unless he can sell their homes in a short sale, in which the lender accepts less than the loan amount. In one case, an older couple paid a California lawyer $3,000 to modify their loan, and “they were completely scammed.” He believes one of the other sellers tried to modify their loan through the FHA-HAMP program, but their request was denied after six month.
“The third lady is so underwater, I advised her to file for bankruptcy,” Woodcock said. “What I see is the fall out.”
Stephanie Fix, a broker with RE/MAX Cherry Creek, who also does a lot of short sales, said perhaps HAMP could work if the banks had the resources and the trained staff to handle the huge volume of requests.
“What I hear is that people fax and fax and fax the documents to banks and then after six months they are denied,” Fix said. Indeed, if a homeowner has any chance of being approved for a loan modification, she recommends that the homeowners remain in constant contact with the lenders. “This is a case, where the squeaky wheel gets the attention. Some homeowners think that once they give the bank their information that is it. But they have to keep on top of them. It might mean calling them three times a week.”
She said the heart ache and frustration for homeowners comes after they’ve been in the process for many months and then are denied. Many people then contact Realtors too late to try to find a short-sale buyer, before the home is sold at a public trustee foreclosure auction
“It kind of gives them a false hope,” Fix said. “If they’re another six months behind, I think it is even harder to find a solution.”
