Shocker: Voluntary Mortgage Mods Aren’t Working
To much fanfare, the Obama administration a year ago launched a $75 billion program designed to prevent foreclosures by providing financial incentives to lenders and servicers who modified mortgages to keep them affordable. The program, the White House said, would reach between 3 and 4 million struggling homeowners.
Well, not quite.
The watchdog overseeing the Wall Street bailout issued a report this week revealing that the program — dubbed the Home Affordable Modification Program (HAMP) – is falling far short of its target. Instead of 3 to 4 million, the HAMP is on track to help between 1.5 and 2 million homeowners, according to the report conducted by the office of Neil Barofsky, special inspector general for the Troubled Asset Relief Program.
In their defense, Treasury officials have adopted a curious argument: They say that the HAMP was never designed to help 3 to 4 million homeowners, but simply *to offer *trial modifications to “up to” that many families. So while hundreds of thousands of homeowners continue to suffer foreclosures each month, the debate in Washington has become a war of words.
Testifying before a House committee last month, Phyllis Caldwell, who heads the HAMP, was quick to point out that nearly 1 million homeowners are currently in trial modifications.
“There are clear signs that our efforts are having a substantial impact,” Caldwell said.
But Barofsky notes that simply offering trial mods is hardly the same thing as providing actual help — that is, if the ultimate goal is to prevent foreclosures and stabilize the housing market.
“Measuring trial modification offers, or even actual trial modifications, for that matter, is simply not particularly meaningful,” the report states. “The goal that should be developed and tracked is how many people are helped to avoid foreclosure and stay in their homes through permanent modifications.”
Housing advocates have a pretty good idea why the HAMP hasn’t been as effective as it might have been: It relies on the voluntary efforts of mortgage servicers, who often find it more profitable to foreclose on homes than make the terms more affordable to homeowners. Advocates are pushing Congress and the White House to adopt a program that would force companies to reduce principal balances. So far, though, that plan has fallen on deaf ears on Capitol Hill.
Barofsky will be testifying on his HAMP report tomorrow before the House Oversight and Government Reform Office. Expect lawmakers to be unhappy with the HAMP’s progress.