Dec 18, 2010

Is HAMP a failure?

According to, "Failure" may be too harsh a word to describe the shortcomings of the U.S. Treasury's Home Affordable Modification Program, but HAMP hasn't exactly been an unqualified success either, judging by the Executive Summary of a 192-page report issued Dec. 14 by a Congressional oversight panel.

Here are three snippets, quoting directly from the report:

• The Panel now estimates that, if current trends hold, HAMP will prevent only 700,000 to 800,000 foreclosures -- far fewer than the 3 to 4 million foreclosures that Treasury initially aimed to stop.

• Many of the problems now plauging HAMP are inherent in its design and cannot be resolved at this late date.

• Absent a drastic increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help -- all because Treasury failed to acknowledge HAMP's shortcomings in time.

Reasonable folks may differ as to whether the U.S. government should help homeowners avoid foreclosure and whether this program was a smart idea from the start.

But setting aside those debates, HAMP clearly has fallen far short of what was promised, and many of the shortcomings were easily foreseeable from the beginning.

Among them, quoting again from the report:

• Banks typically hire loan servicers to handle the day-to-day management of a mortgage loan, and the servicer's interest may at times sharply conflict with those of lenders and borrowers.

• HAMP attempted to correct this market distortion by offering incentive payments to loan services, but that efforts appear to have fallen short, in part because servicers were not required to participate.

• Many borrowers have second mortgages from lenders who may stand to profit by blocking the modification of a first mortgage.

• Treasury has also failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications.

To be fair, 700,000-plus loan modifications is that many more than the zero which might have resulted without HAMP. But that's bound to small comfort for the 2 million-plus homeowners who seemingly were promised something more.

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