Mortgage Modification

The Treasury Department has admitted that the Making Home Affordable (HAMP) foreclosure prevention program has not made the type of impact that was expected.  In response the Treasury Department is instituting new rules that will take effect on June 1, 2010.

The new HAMP requirements will force servicers to have in hand all the needed documents from borrowers before they extend a three-month trial modification. Currently, trial modifications can begin after authorization by phone, with related paperwork only needed sometime within the three-month trial period.

By getting the paperwork to servicers before the trial “mod” process begins, borrowers are likely to benefit, because once a HAMP trial begins, they’re guaranteed a permanent modification as long as they make the three trial payments on time. Right now, many are turned down even after making three trial payments.

According to HAMP’s own regulations and requirements an estimated 3 to 4 million Americans could save their home from foreclosure under the program.  However, mortgage lenders have only enrolled 110,000 homeowners into the permanent modifications as of December 2009.  While the new regulations will reduce the false hope created when homeowners facing foreclosure are enrolled into temporary modifications only to be dropped later, I still don’t see how the mortgage lenders will be forced to take action.

What this new change could mean is that even fewer Americans facing foreclosure will receive the temporary relief provided by the three month trial modification.  Do we need to set up quota system for mortgage lenders requiring them to modify a certain amount of mortgages every fiscal quarter? Whatever we do, it needs to be done fast and it must include some type of forbearance program for homeowners who are facing foreclosure because of a job loss. Job loss is now becoming a leading cause of foreclosure.