Original posted on Lexology:
Today, the Subcommittee on Housing and Community Opportunity of the House Finance Services Committee held a hearing entitled, “The Recently Announced Revisions to the Home Affordable Modification Program” to discuss the enhancements to the Home Affordable Modification Program (HAMP) and Federal Housing Administration (FHA) program announced last month by the Treasury. Testifying before the Subcommittee were the following witnesses:
- David Stevens, Assistant Secretary for Housing/Federal Housing Commissioner, U.S. Department of Housing and Urban Development (HUD)
- Phyllis Caldwell, Chief, Homeownership Preservation Office, U.S. Department of the Treasury
- Dean Baker, Co-Director, Center for Economic and Policy Research
- Alys Cohen, Staff Attorney, National Consumer Law Center
- Vincent Fiorillo, Trading/Portfolio Manager, Doubleline Capital LP
- Andrew Jakabovics, Associate Director for Housing and Economics, Center for American Progress Action Fund
- Arnold Kling, Financial Markets Working Group, Mercatus Center, George Mason University
- Robert E. Story, Jr., Chairman, Mortgage Bankers Association
- Alan White, Assistant Professor, Valparaiso University School of Law
Chairwoman Maxine Waters (D-CA) began the hearing by noting that while the original HAMP program helped some borrowers receive lower interest rates, the original program failed to address unemployed or underwater borrowers. Therefore, Chairwoman Waters was interested in learning how the new initiatives would address these pressing issues and what should be expected from the new initiatives. Ranking Member Shelley Capito (R-WV) noted that HAMP had fallen “woefully short” of expectations and expressed significant concerns about the program’s overpromising of assistance, noting that HAMP has provided assistance to only a fraction of the population it was designed to help.
Mr. Stevens began his testimony by emphasizing that the Obama Administration’s goal was to provide “stability for both the housing market and homeowners.” However, despite some successes, Mr. Stevens acknowledged that HAMP faced continuing challenges. Instead of attempting to assist all troubled homeowners, Mr. Stevens said that Treasury believes that HAMP should focus on helping responsible homeowners with opportunities “to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary facilitate the transition to a more sustainable housing situation.” He noted that the new FHA refinance option would “create stabilizing incentives in the housing market” by providing more opportunities for loan restructuring for borrowers who are current on their mortgage and who owe more than their home is worth. Mr. Stevens believed that HAMP was on track to offer second chances to 3 to 4 million homeowners, but acknowledged that challenges still existed before those goals could be achieved.
Responding to Chairwoman Waters’ inquiry into how the program would affect FHA reserves, Mr. Stevens noted that the option to refinance under the FHA would use currently available resources and that TARP fund would be made available if necessary to offset lender claims on defaulted loans. Therefore, according to Mr. Stevens, the new refinancing option would not expose the FHA to further risks. Finally, Mr. Stevens noted that HAMP could not permit all borrowers to avoid foreclosure and acknowledged that some borrowers will not qualify for the program. However, HAMP presents significant opportunities for homeowners assisted by the program.
Ms. Caldwell began her testimony by noting that recent modifications to HAMP were designed to assist the unemployed and underwater homeowners. Echoing Mr. Stevens’ statements that the program cannot stop every foreclosure, Ms. Caldwell emphasized that HAMP needs to focus on providing responsible homeowners opportunities “to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, facilitate the transition to a more sustainable housing situation.” Although more than 1.4 million borrowers had been extended modification offers under the HAMP and more than 225,000 homeowners had received permanent modifications, Ms. Caldwell acknowledged that the policy and operational issues, including a complex conversion and implementation process, had been much more challenging than anticipated and that unemployment and negative equity continued to pose challenges for both homeowners and HAMP. Aggressive enhancements to HAMP, including temporary assistance for unemployed borrowers and FHA refinancing options for underwater borrowers, were implemented to assist these at-risk borrowers and to broaden the program’s impact.
Witnesses on the second panel generally shared the view that the recent modifications to HAMP remained insufficient and identified various solutions to address the current housing crisis. Mr. Baker focused his testimony on a “Right to Rent” proposal, under which Congress could change foreclosure rules to allow homeowners to remain in their homes as renters for a substantial period of time following a foreclosure. He argued that this alternative would immediately provide housing security to homeowners facing foreclosure, would not require any taxpayer dollars, and would provide the right incentive for lenders “in future market frenzies.” Ms. Cohen argued that the recently announced changes to HAMP were inadequate to address the scale of the continuing foreclosure crisis and that HAMP should be further revised to (1) increase transparency by, among other items, establishing a formal appeal process, (2) change the trial modification program’s terms to lessen adverse effects on homeowners and (3) expand the eligibility and coverage of HAMP. Mr. Jakabovics noted that the program’s biggest barrier remained “the ability of servicers to quickly and accurately modify loans” and recommended that the Treasury transfer servicing rights to those servicers who are able to meet their obligations. Mr. Story recommended implementing a waiver process, providing interest-only options for modifications to address ARMs with low interest rates, and amending the Fair Debt Collection Practices Act to permit servicers to effectively communicate with borrowers. According to Mr. White, to achieve real reductions in foreclosures and mortgage debts, the following steps are necessary: (1) enabling bankruptcy courts to write down mortgage balance for distressed homeowners, (2) rectifying the problem of junior mortgage liens and (3) addressing inadequate mortgage servicer performance.