The Treasury reported Monday that the government's Home Affordable Modification Program, or HAMP, had provided permanent help to 521,630 homeowners since the program began in spring 2009.
By comparison, over the same period, banks negotiating directly with borrowers have made about two million permanent loan modifications outside the government's program. These modifications continued to rise in recent months even as the number of HAMP modifications trailed off.
Critics of HAMP say the program has made little impact on the housing market and should be ended. Last week, House Republicans introduced a bill to end the effort, calling it a "colossal failure." The administration defends the program.
"I think we've got to remember that HAMP has achieved over a half-million modifications. These are people that make $50,000 a year, so to sort of write it off and say, 'Well, it's a failure,' I think is not really appropriate," said Tim Massad, an acting assistant Treasury secretary, in a hearing on Capitol Hill last week.
Banks say they are doing more of their own modificationsâ€”and fewer HAMP modsâ€”because eligibility requirements for HAMP are more stringent. Once a borrower is deemed ineligible for the government program, a modification worked out directly with the bank sometimes is the best option.
But also having a big impact are state mandates requiring banks and loan-servicing companies to hold mediation sessions with borrowers prior to foreclosing, said lawyers for delinquent borrowers and judges handling foreclosure cases.
About 20 states encourage some type of foreclosure mediation program to allow borrowers and lenders to hammer out a settlement, according to the Center for American Progress, a liberal Washington think tank. Three of those statesâ€”New York, Florida and Connecticutâ€”and a handful of cities make mediation mandatory.
In Florida, Fannie Mae has begun testing a foreclosure-prevention program to get banks to meet with troubled borrowers to negotiate mortgage modifications and other alternatives before filing foreclosure documents in court.
"If they're looking at mounting legal costs and risks to foreclose, then the workout process might seem like the best option," said Alan M. White, a professor of law at Valparaiso University in Indiana, who has written extensively on the mortgage crisis. "Banks have got states preventing you from foreclosing...dismissing cases and ordering mediation, those are just two tools that state judges have."
Others say banks are more willing to modify loan termsâ€”which generally means reducing interest rates, forgoing late fees and extending the terms of loansâ€”because it's starting to be cheaper than completing a foreclosure. In some cases, in some states, that process can take years and thousands of dollars in legal fees to complete.
Among the banks to ramp up modifications isWells Fargo & Co., which plans to hold 20 large-scale mediation sessions across the country this year. More than 150,000 borrowers who have missed payments, or have been in modification negotiations, have or will be invited to come to hotels and convention centers for rapid-fire meetings the bank hopes will result in loan modifications.
That's what happened to Patricia Yador, 53, of West Orange, N.J. at a "home preservation workshop" held at the Marriott hotel in downtown Brooklyn last Tuesday. Wells Fargo, her mortgage servicer, agreed after a mediation conference to knock more than 2 percentage points off the interest rate on her $300,000 mortgage.
That cut her monthly payments from $3,257 to $2,833.
"These are tears of joy because [before] they always turned me down," said Ms. Yador, who has owned her home for 17 years and lives on $2,100 in disability and pension payments since she stopped working as a hospital accounts manager about three years ago.
Ms. Yador was one of 30,000 borrowers that Wells Fargo invited to participate in the modification fair in the New York-New Jersey area. Borrowers like Ms. Yador, who end up in a non-HAMP modification, are far more common than those who go through the government program. Of the roughly 600,000 loan modifications made by Wells Fargo since January, 2009, 86% have been done outside of HAMP, and 14% through HAMP.
HAMP offers servicers financial incentives to reduce loans to 31% or less of a borrower's income, but it also has stringent requirements for eligibility. Borrowers who have lost their jobs or who have expensive medical conditions or other debts often are rejected by HAMP.
A Wells Fargo spokesman said the modification fairs are driven by the bank's desire to do right by its customers. But others say the stepped up efforts are in response to ratcheted-up pressure from the states.
For the last two years in Philadelphia, where foreclosures are handled by judge, courts have moved to a system where they automatically schedule a "conciliation conference" within 30 to 45 days of each foreclosure filing.
Servicers are required to send a representative in person or by telephone to these conferences. If they fail to do so, the case can be postponed. The courts also keep mediators and pro bono housing lawyers on hand to serve borrowers.
"Yes, we are asserting pressure, but it's almost as if they want the pressure," said Annette Rizzo, a judge with the Court of Common Pleas in Philadelphia. "The banks always say that reaching out to homeowners, it's a black hole. It's so hard to connect with them. That's what we offer, to connect with them."
About 75% of eligible, struggling homeowners show up for and participate in mediation sessions in Philadelphia court rooms, and they have produced about a 35% success rate for about 14,000 loans according to an evaluation of the program to be released next month. Programs in Staten Island, NY and Bloomington, Indiana, have produced similarly high participation rates.
To be sure, not every mediation or modification results in significant savings for homeowners and it's not clear how these modification will perform over time.
In the third quarter, modifications done in the HAMP program reduced monthly payments by an average of $585, almost double the $332 reduction in payments for modifications done outside the HAMP program. Those loans with modifications that reduced payments by 10% or more were almost twice as likely to be current than those loans with modifications that reduced payments by less than 10%.
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