Is The Administration’s Mortgage Modification Program Going To Be Enough?

This week, the Treasury Department announced that the administration’s Home Affordable Modification Program (HAMP) — which is part of the larger Making Home Affordable (MHA) program — has resulted in lower monthly mortgage payments for 500,000 homeowners. According to Treasury, the program has hit this milestone three weeks ahead of schedule.

While a half-million modifications is nothing to sneer at, as Mark Zandi of Moody’s said, “it’s a help on the margin…but it’s not going to end the foreclosure crisis.” And Theo Francis at BusinessWeek noted this distressing tidbit of data:

Mortgage servicers actually signed up fewer homeowners in September than they did in August — 100,216 last month, down from 133,192 the month before. That was even below the 110,397 signed up in July. Deceleration doesn’t bode well for a program that hasn’t yet hit its halfway point.

Especially troubling is that some banks still can’t get their modification programs rolling, despite the bevy of federal incentives that HAMP provides. Bank of America has only managed to modify mortgages for 11 percent of eligible homeowners. Every time that Treasury releases new data, it becomes painfully apparent that some banks just aren’t up to the task — or aren’t interested — in dealing with the mortgages that they hold.


In a report released yesterday, the Congressional Oversight Panel (COP) for the Troubled Asset Relief Program said that another problem with HAMP is that the foreclosure crisis has expanded far outside the scope of mortgages for which HAMP applies:

Many of the coming foreclosures are likely to be payment option adjustable rate mortgage (ARM) and interest-only loan resets, many of which will exceed the HAMP eligibility limits. HAMP was not designed to address foreclosures caused by unemployment, which now appears to be a central cause of nonpayment, further limiting the scope of the program. The foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now.

The COP advocates looking at a bridge loan program for unemployed workers, modeled off of Pennsylvania’s Homeowner Emergency Mortgage Assistance Program, while Tim Fernholz points to the merits of allowing homeowners “to remain in their home as rent-paying tenants.”

I still think that mandatory mediation — which requires lenders to meet with the borrower, judges, housing advocates and attorneys to try and come to some alternate arrangement before finalizing a foreclosure — has a lot of merit. A mandatory mediation program in Philadelphia has kept 60 percent of borrowers out of foreclosure, while a state-wide program in Connecticut has a 57 percent success rate. At a minimum, the federal government should be supporting any state or local mediation programs and requiring mediation on all federally owned mortgages.