Is the Making Home Affordable Modification Program Working?
When the Obama administration launched the Making Home Affordable Modification Program (HAMP) many homeowners thought they would finally have access to modification tools that would help them avoid foreclosure . However, HAMP has failed to deliver on its promises and many view the $75 billion invested in the foreclosure prevention program to be a waste while others say the program is a modest success at least.
Yet after its first 11 months, HAMP is lagging. Of 1.7 million cases thought to be eligible in the first year, only 116,000 have received permanent loan modifications through January — well below half what the administration had anticipated. The modifications are far outstripped by foreclosure starts, which totaled 316,000 in January alone, according to RealtyTrac. Lender resistance or incapacity explains only part of the shortfall; many borrowers failed to supply required documentation because it might show they had overstated their income to get a loan — i.e., that they had not, indeed, “played by the rules.”
One of the major reasons why HAMP has failed to make a dent in the foreclosure crisis is that it is depending on the voluntary action of mortgage servicers to modify toxic mortgages. The HAMP foreclosure prevention program is not proactive enough and does not inflict penalties on noncompliant mortgage servicers who have high foreclosure rates. Currently, mortgage servicers have no motivation to modify loans so that homeowners can avoid foreclosure.
Also, because legislation that would have allowed for the modification of mortgages in bankruptcy was defeated, mortgage servicers are confident that bankruptcy courts won’t be able to force them to modify toxic mortgages during bankruptcy. If we want to make a serious impact on this foreclosure crisis we must become proactive about forcing mortgage servicers to modify mortgages that are truly toxic.