Report: Govt. Hampering Loan Modification Deals

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A Congressional Oversight Panel is out with a brand new progress report on the federal government’s $50 billion Home Affordable Modification Program — and it doesn’t like what it sees.

The 216-page report, released in April, does have some good news, if you can call it that. HAMP has resulted in 230,000 U.S. homes earning permanent reductions in loan payments by March 31, based on numbers compiled by The Wall Street Journal. That number is from 168,703 in February.

But placed in context, the HAMP numbers aren’t that impressive. The U.S. government estimates that there about 8 million U.S. homeowners behind on their mortgage payments, or who are already in foreclosure. “It now seems clear that Treasury’s programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble,” the panel reports.

The Congressional Oversight Panel, convened in October 2009, at the height of the economic crisis, noted then that HAMP had a meager record of helping debt-ridden U.S. homeowners — permanently modifying the mortgages of just 1,711 homeowners.

While HAMP (run by the Treasury Department) has obviously upped those numbers in the past eight months, the oversight panel thinks it can do better. When HAMP was introduced in March 2009, the program was heralded by both the White House and the Treasury Department as a way that millions of Americans could get help with their burdensome mortgages. But the COP says the program has not come close to accomplishing its objectives. Of the homeowners it has helped, the panel notes that many are on five-year loan modification programs, and the likelihood of re-entering foreclosure after those five years are up is very high. “In the final reckoning,” the panel notes, “the goal of HAMP falls miserably short of the 4 million American householders it was supposed to assist”.

The HAMP numbers especially grow paler when compared to efforts by private lenders to modify homeowners' mortgages. In recent Congressional testimony, Bank of America (Stock Quote: BAC) reported that it had completed 560,000 loan modifications (it had 1.4 million homes in foreclosure in its portfolio in early 2010). Of the 391,000 Bank of America homeowners offered a loan modification deal via HAMP, only 33,000 were granted permanent modifications.

For its part, the Treasury says it’s aware of HAMP’s shortcomings, as well as the recently enacted Home Affordable Foreclosure Alternatives (HAFA), but it says that its early goal of loan modifications for 4 million homes was unrealistic.

“It’s critical to point out that many of the foreclosure starts that are referenced in this report will in fact never become foreclosure sales thanks to HAMP and HAFA,” the Treasury said.

“(But) as we have said before, these programs are not intended to help every homeowner in trouble. The Administration’s programs were designed to help responsible, eligible families keep their homes, not for investors or speculators, and not to save million dollar houses or vacation homes,” the Treasury added. “We also must recognize that we cannot help those who simply bought a home that they could not afford.”

As the COP points out, the Treasury is having a tough time getting HAMP off the ground — even as the foreclosure crisis rages on, pretty much unimpeded.

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