Today, Edward Pinto, Fannie Mae’s chief credit officer from 1987 to 1989 and a prominent housing consultant, testified before the House Oversight Committee on
Today, Edward Pinto, Fannie Mae’s chief credit officer from 1987 to 1989 and a prominent housing consultant, testified before the House Oversight Committee on the question of whether loan servicers are doing enough to prevent foreclosure and preserve homeownership. His bottom line: The Treasury Department’s Home Affordable Modification Program, or HAMP, has utterly failed at its original goal of modifying three million mortgages and helping to staunch the housing crisis.
Among the harsh points he made: HAMP’s program requirements are so arcane that servicers have trouble complying:
The Treasury Department…promised “clear and consistent loan modification guidelines that the entire mortgage industry can use.” There are only two words to describe HAMP’s guidelines: numbing complexity. At last count HAMP had 800 requirements and servicers are expected to certify compliance. With-ever changing regulations, a constant need to re-evaluate past decisions in light of new regulations, and multiple appeals, it is no wonder that the HAMP pipeline became clogged through no substantial fault of servicers.
Ultimately, the program should help just 6 or 8 percent of the initial target of homeowners:
[In previous testimony I noted] that the then-current HAMP pipeline would likely yield only 250,000 homeowners who would ultimately avoid foreclosure under HAMP — only about 6 percent to 8 percent of the original goal. It now looks like my projection will be pretty close to the mark. HAMP activity has slowed markedly, with the number of new monthly trial modifications declining by two-thirds between December 2009 and May, 2010. The number of new permanent modifications in May 2010 was 30 percent below the April 2010 count. As of May 31, there were 340,000 active permanent modifications. Assuming a 40 percent re-default rate, only 200,000 of these permanent modifications will likely be successful over the long-term. There are another 468,000 active trial modifications. Of these, perhaps only 75,000 will become successful long-term permanent modifications. Discounting all the spin, a slowing HAMP pipeline will yield about 275,000 successful long-term permanent modifications, with perhaps another 100,000 successes resulting from future trial modifications. Today, I reiterate my warning about Treasury’s propensity for applying a rosy gloss.
He also said that HAMP has, perversely, ginned up the number of strategic defaults and simply “extended” the length of the market correction:
**HAMP’s flawed design and implementation along with Treasury’s early efforts to “shame and blame” the mortgage servicers promoted strategic defaults, as many borrowers came to expect a modification and blamed their servicer for not getting one. **HAMP has also slowed down foreclosure processes, pushing the level of heightened foreclosure activity out to 2013 or 2014 and likely extending the period for the market to correction.
All in all, the hearing today has solidified the view that HAMP has largely failed, and in some cases made the housing crisis worse.
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