Mortgages

HAMP Fails to Save Homeowners from Foreclosure

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Loan Modification RejectionsIt’s official: The Obama administration’s biggest attempt to fix the foreclosure mess is an unmitigated failure. According to a Congressional Oversight Panel report released this week, the Treasury Department’s Home Affordable Modification Program (HAMP) failed for the exact reason many experts said it would from the beginning: The program expected loan servicers to modify loans, even when it was in their best interest not to.

The program will only prevent 700,000 to 800,000 foreclosures, far short of the 3 or 4 million it was supposed to help avoid, the report found.

“As a result, an untold number of borrowers may go without help – all because Treasury failed to acknowledge HAMP’s shortcomings in time,” according to the panel’s report.

Read more on Why the Home Loan Mod Program is Failing.

The main reason for the program’s failure? The Treasury Department didn’t really understand the mortgage industry before trying to fix it, the panel found. Specifically, the Treasury failed to grasp that loan servicers have completely different interests than borrowers or lenders when a homeowner falls behind on mortgage payments.

“For example, although lenders suffer significant losses in foreclosures, servicers can turn a substantial profit from foreclosure-related fees,” the report found. “As such, it may be in the servicer’s interest to move a delinquent loan to foreclosure as soon as possible.”

The Treasury’s failure to design a program that worked, and its continued failure over the last year to acknowledge that HAMP was falling far short of its goals, leaves the federal government in a budget quagmire. Congress originally gave HAMP $30 billion to spend on incentives to help lenders and servicers modify loans. Only $4 billion of that was spent. That leaves Treasury with an extra $26 billion lying around.

Image: Kirby Hamilton

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