How the best laid plans of Macs and Maes have gone astray.
In March, 2009, the Obama administration jumped to the rescue of the crashing housing market as part of an overall plan to right the nation’s financial ship. The program was fairly straightforward: offer a plan that would allow borrowers in trouble with their mortgages a way to keep their homes. By limiting foreclosures, the government reasoned, the supply of homes on the market would drop, bringing “supply” into balance with “demand.”
HAMP
The $75 billion program, called HAMP, (Home Affordable Modification Program), set forth a set of simple, straightforward guidelines for lenders to follow in qualifying and processing modifications. The goal was to keep things simple for banks and borrowers, and making transparent the use of government money backing the program.
As the administration was banging out the details regarding HAMP’s structure and implementation, in January, 2009, the American Alliance of Home Modification Professionals (AAHMP, of which I am a member) submitted a set of guidelines to the Treasury that improved upon the FDIC’s “Mod-In-A-Box” program.
Historical data from HUD established that to be affordable for most homeowners, a mortgage payment must be no more than 31% of a homeowner’s monthly income. The AAHMP guidelines implement a “Waterfall Approach” in determining how to modify a mortgage and bring payments down to that magic 31% number. The first step is to reduce the borrower’s interest rate to as low as 2%. If that isn’t enough, then the term of the loan is to be extended to a limit of 40 years. If that still isn’t enough, the servicer under HAMP can then forebear or reduce the principle, or amount of the loan itself.
Expectations were high for HAMP. Finally the nation had in place a plan that would offer relief to the thousands of homeowners who might lose their homes, and which would also prop up the housing market and slow or stop the free-fall of property prices.
The response to the program was overwhelming. Thousands of homeowners applied, flooding the servicers who didn’t have enough trained processors to handle the massive load of cases. AAHMP wanted to help, and we offered to provide trained professional processors and underwriters with state-of-the-art technology to the Treasury Dept, Fannie Mae and Freddie Mac, to properly implement HAMP. So far our offers have been ignored, resulting in the huge backlog of cases we have seen this year.
Unfortunately, this backlog has resulted in hurting homeowners directly. Thousands have been denied HAMP modifications through disqualification. More thousands who were granted trial modifications and made their reduced payments have been told they no longer qualify. The fact is that many of these homeowners DO qualify but have been denied due to improper underwriting.
Homeowners must be made aware that by law, every homeowner with a mortgage backed by FannieMae or FreddyMac (GSE’S) must be evaluated for HAMP according to laws set by Congress. The law further states that ANY homeowner denied a HAMP modification has the right to a review, especially if the denial comes from a GSE.
Clearly the job of handling the massive number of loan modifications necessary is a daunting task for the servicers of those loans. But it is no excuse for denying hope and a means of escape for the thousands of homeowners who rightfully deserve modification.
