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January 28th, 2011

White House: This is why HAMP is struggling



Foreclosure Exit SignAt a time when certain Congressmen are saying that Washington should get out of the foreclosure prevention business, other key administration officials are saying that we just need to do a better job.

On Tuesday we wrote how Rep. Randy Neugebauer (R-Texas), the chair of the House Financial Services Oversight Subcommittee, said “All these foreclosure mitigation initiatives we’re taking need to stop.” Neugebauer’s feeling is that these efforts are a) prolonging the crisis; and b) preventing the private market from reentering the mortgage and housing arenas.

However, last week in a joint statement, Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan announced that there needs to be some form of a shakeup in terms of how servicers are compensated for approving loan modifications through HAMP:

The way mortgage servicers — firms that collect loan payments on behalf of a loan’s owner — are paid is fundamentally “broken and should be fixed,” Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan said in a joint statement.

Geithner and Donovan’s comments followed news the regulator for mortgage finance giants Fannie Mae and Freddie Mac said it would consider new ways for mortgage servicers to be compensated in order to make it easier to modify loan terms for struggling homeowners.

The existing system for mortgage servicers provides little flexibility to change easily the terms of the loan if a borrower falls behind on monthly payments.

“The current model has not motivated mortgage servicers to invest the time, effort and resources needed to fully explore all options to help delinquent borrowers avoid foreclosure,” Donovan and Geithner said, echoing the Federal Housing Finance Agency.

What does this mean?

This could mean a couple things: 1) Servicers will be given the “flexibility” to change the modified terms if a borrower begins to fall behind on their modified mortgage; or 2) Servicers will be paid even more to simply modify troubled loans.

Since HAMP’s inception in 2009, about 500,000 loans have been permanently modified. To put that number into perspective with the scope of our nation’s foreclosure epidemic, “Banks seized more than 1 million U.S. homes in one year for the first time in 2010…” reports Corbett B. Daly of Reuters.

In what you think would be more of a criticism, but was instead treated as an accolade by some, HAMP has fostered growth in private modifications, spurring new modification strategies for the private market. That said, and taking into account that the majority of qualified borrowers have most likely already been worked through the system, I wonder, how much more success HAMP will claim in the last two years of its existence?

Will HAMP ever be a success?

In response to our Tuesday story on Rep. Neugebauer, one of our readers, Mitch, said that in his opinion it was the government’s responsibility to have the backs of the American homeowner and should be at the forefront of investigating illegal foreclosures (robosigning) and the like.

While I can agree with that, I just wonder to what length Washington will go, how much will they ultimately spend to prove that HAMP can be some form of a success?

In my mind, Geithner and Donovan’s declaration is just the latest attempt at trying to leave HAMP with a legacy other than a failure. Will it work? Probably not.

For more, please read:
Update1: Should millions of trial mods be considered a victory? No.
Let’s not turn nothing into something

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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