Mortgage expert and one-time Fannie Mae Chief Credit Officer Edward Pinto blasts the claim that 500,000 homeowners have entered into HAMP (Home Affordable Modification Program).
Based on comments being made by industry participants and program results to date, HAMP is rapidly becoming: I will pretend to modify your loan if you pretend that you will make the payments.
On October 9 Treasury Secretary Geithner announced that the Obama administration’s HAMP had enrolled its 500,000 participant.
However, only about 1200 borrowers have entered the permanent modification phase; with the balance being in the 3-5 month trial period. This is in spite of the fact that there were 200,000 trials in progress back in July.
The reason for this snail like progress is, in an effort to reach its previously announced target of 500,000 modifications by November 1, program documentation guidelines were loosened. According to Michael Young, vice chairman of the Mortgage Bankers Association, 99% of the loan modification packages are incomplete. This has led to speculation that many of the 500,000 will never submit the necessary documentation or will not qualify.
Also of concern is the expected dropout of a sizable number of qualified borrowers who fail to make all the payments required during the trial period.
This fear has been heightened by the concern of some servicers that borrowers will use the trial period to game the foreclosure process and delay their own foreclosures by another 5 or 6 months.
Finally, in an effort to get more modifications approved, unemployment compensation will be counted (see attachment).
The number of permanent modifications resulting from these 500,000 trial modifications could be low as 100,000-200,000. Finally, at a 50% ultimate redefault failure rate, only 50,000-100,000 performing loans will result. At this success rate, it is mathematically impossible for the administration to meet its announced goal of keeping 3 to 4 million Americans in their homes by preventing avoidable foreclosures with loan modifications . To do so would require putting 15 -30 million loans into trial modifications to reach the stated goal.