27 January 2011
USA Today reported that the loan modification program was a failure—but it wasn’t the program that was the cause according to the head of oversight on the Home Affordable Modification Program (HAMP) but rather servicers that cannot identify loans that are inevitable for foreclosure versus those that are avoidable.
Under HAMP, less that 550,000 loans have been modified, far short of the planned three to four million.
Three members of Congress have sponsored legislation that would cancel the program, saving $30 billion of allocated but yet to be spent funds. (Click here to view the USA Today Article.)
In 2009, US News reported that 53 percent of the loans modified in the first quarter of 2008 had fallen back into default. (Click here to view the US News Article.)
Loan modifications included reducing interest rates (to as low as 2 percent) and extending the amortization schedule (up to 40 years) The goal was to make the monthly payment no more than 31 percent of household income.
Incentives to servicers included $1,000 up front and then $1,000 per year (for three years) assuming that the borrower continued to make payments.
Originally, $75 billion was budgeted for the loan modification program. Assuming that $45 billion was spent to date, then the cost per loan modified tallies more than $80,000.
Ted C. Jones, PhD
Senior Vice President-Chief Economist, Stewart Title Guaranty Company
Director of Investor Relations, Stewart Information Services Corporation