Nearly half of the mortgages modified in the Home Affordable Modification Program (HAMP) program, the Obama administrations main program meant to prevent foreclosures, are back in default, according to a report released Wednesday from the Special Inspector General for the Troubled Asset Relief Program. The program was started in 2009 to give struggling homeowners loan modifications and help them avoid foreclosure.
The program has helped about 865,100 homeowners avoid foreclosure through permanent modifications since it began, yet 306,000 have redefaulted as of the end of April, according to the report. Of those with permanent modifications, about 10 percent have missed one to two monthly payments and “are at risk of continuing the default trend,” according to Reuters.
The administration has gone through multiple rounds of fixes to the program, including expanding the requirements for participation, paying investors more for principal reductions, and extending deadlines.
But the program has been long been plagued by failures. When it was first initiated, officials estimated that it would reach as many as 4 million homeowners, yet closer to just 910,000 have been helped. And more than 1 million borrowers have been bounced out of the program either thanks to redefaulting after failing to make the first three payments during the trial process, failing to qualify, or for failing to finish a three-month trial.
While the Treasury Department gave the program $38.5 billion in funds from the Troubled Asset Relief Program, just $8.6 billion, or 22 percent, of those funds have actually been spent.
Some of the blame certainly lies with banks, who could have prevented 800,000 foreclosures if they had been better equipped to administer the HAMP program. Bank insiders have revealed even more damning details, such as the claim that Bank of America conducted a “blitz” twice a month in which case managers were instructed to deny any HAMP applications more than 60 days old.
If the program were given the authority to conduct principal reductions, however, rather than just loan modifications, it could have been much more effective. The Congressional Budget Office has concluded that doing so would save billions in taxpayer dollars while reducing foreclosures and delinquencies. Various reports have also shown that principal reduction is the most effective tool for fighting foreclosure.