Home Affordable Modification Program Continues to Struggle
The Mortgage Calculator’s last report on the status of the federal government’s Home Affordable Modification Program (Banks Represent Main Obstacle to Loan Modification) argued that banks were largely to blame for the program’s failure to get off the ground. In an attempt to jump-start modifications, “The administration on Aug. 4 unveiled the first of what will be monthly name and shame exercises, publishing data on the loan-modification efforts of about three dozen companies.”
Three weeks later, however, it doesn’t look like much progress has been made. “Moody’s analyst Celia Chen…said that the number of modifications ‘will have to step up substantially in the remainder of this year in order’ to hit the 1.5 million to 2 million modifications that her firm estimates can be completed under HAMP by 2012,” which is less than half of the target of 4 million set by the government.
Demand for loan modifications is still running strong according to anecdotal evidence, which suggests that the fault lies primarily with the banks. According to government estimates, “Only 9 percent of eligible borrowers had been offered trial loan modifications through June.” By their own admission, banks remain reluctant to participate in the program. “In the Fed’s latest survey of senior loan officers, about 30 percent of banks said they were still tightening standards for both consumer and business loans.”
In some cases, banks have even acted counterproductive to the modification process, by dubiously suggesting that borrowers should deliberately fall behind on their payments in order to qualify for modification. It’s not clear whether such a strategy can ultimately be successful, but from a cost/benefit standpoint, it’s definitely not advisable. Horror stories abound, whereby “the modifications never came….These borrowers burned through retirement savings, destroyed their credit ratings and suffered mental and financial hardship,” and even foreclosure!
The government also deserves some of the blame for not making the program altogether transparent. One columnist seeking to navigate the process himself, wrote: “I discovered, just trying to access the program put me through a torturous weeks-long battle with red tape that made my previous interactions with the RMV and the IRS seem downright fun.” Unfortunately, his experience seems to be typical, and the relative handful of borrowers who were ultimately lucky enough to secure modifications were only able to do so after months of hard work and persistence.