pon closer examination, the Home Affordable Modification Program (HAMP) has not helped as many borrowers as it may seem, according to a report from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).
HAMP, a government loan modification program created to prevent foreclosures, has provided about 1.2 million modifications to distressed borrowers since its inception in 2009. Of those borrowers, 306,538 fell behind on their payments by three months, which means in actuality, 865,100 are still actively in the program, the taxpayer watchdog agency revealed. Borrowers who miss three consecutive payments become disqualified from the program.
Of the redefaulters, 22 percent have entered into the foreclosure process.
SIGTARP also found the percentage of modified homeowners who end up as redefaulters has steadily increased over time. At the end of 2009, the share stood at 1 percent and has since risen to 26 percent as of April 2013.
The likelihood of falling out of the program also seems to increase over time.
For example, among oldest HAMP modifications, the redefault rate was 46 percent. For loans modified in 2010, the redefault rate averaged 38 percent.
On the other hand, homeowners who received modifications in early 2013 have a redefault rate of less than 1 percent.
The report also found states with a smaller numbers ofHAMP borrowers tended to have higher redefault rates. Mississippi, which has provided just over 4,500 HAMPmodifications, has a redefault rate of 35 percent, the highest out of any other state. Alabama was close behind with a default rate of 33 percent, followed by Tennessee, Delaware, Louisiana, and Missouri, where the rate was 32 percent for each state.
Based on region, Western states averaged the lowest default rate of 21 percent and had the highest number of permanent modifications as group.
According to the report, modified homeowners most likely to fall behind on payments received the smallest monthly payment reductions; are underwater on their mortgage; had subprime credit scores when modified; and have high debt burdens.
HAMP redefaults not only impact homeowners and affected communities, but they also cost taxpayers, according to the report.
SIGTARP stated taxpayers have lost a total of $815 million in TARP funds that were used to pay incentives for 163,811 modifications that redefaulted.
“Homeowners who receive a HAMP permanent modification but end up losing their home to foreclosure or fall out of the TARP program are not being helped to keep their homes as TARP intended, and taxpayers lose the positive impact these funds were to provide for the individual family and the community at large,” the report explained.
To improve the program, SIGTARP offered several recommendations , which Treasury agreed to implement.
Recommendations include conduct further research into the causes of redefault; require servicers to develop and use an “early warning system” to actively reach out to homeowners who may be at risk of redefaulting; and provide help and information to homeowners who have redefaulted, the report stated.
by Esther Cho