Is the HAMP Loan Modification Program Really a Failure?

Is the HAMP Loan Modification Program Really a Failure?

As the foreclosure crisis grinds on month after month and year after year, it is hard to find any news to feel good about. Even the recent dip in foreclosure petitions in October was probably due more to the confusion and delays caused by the apparent failure of banks and servicers to process foreclosures in a legal manner rather than any real shift in the market. Foreclosure deeds in 2010 already exceed the number of deeds in 2009 and continued high unemployment and tight credit are likely to cause this crisis to continue for a long time.

And it is now an old story that banks and servicers are not agreeing to loan modifications at anywhere near the rate we need to stabilize the market, keep homeowners and tenants in their homes, and avoid further neighborhood decline.

Despite this, recent federal statistics indicate that 10,535 Massachusetts homeowners obtained a permanent loan modification under the federal HAMP program between January 1, 2010 and October 31, 2010, and a total of 12,154 Massachusetts homeowners have received one since the program began in 2009.  While 12,154 is far too few compared to the 40,686 homeowners who have been foreclosed since 2007 and the 20,603 who have been foreclosed since 2009, it is still 12,154 families who have kept their homes. (The number is probably a bit lower since about 11% of these modifications re-default.)  Significantly, 10,535 homeowners have received a modification during 2010 compared with 11,334 homeowners who have lost their home to foreclosure.

In other words, without HAMP, the problem would be nearly twice as bad this year. Clearly, HAMP is by far the largest scale program yet developed to prevent foreclosures. MACDC members and other non profits continue to use HAMP to help thousands of homeowners avoid foreclosure and stay in their homes.  With all the challenges associated with loan modifications, foreclosure prevention counseling remains the fastest and most cost effective method for stopping foreclosures, preserving family wealth, avoiding displacement, and stabilizing neighborhoods.

Fortunately, these non profits will soon benefit from additional resources to support their vital work. The Division of Banks has issued an RFP  to provide additional funding to these nonprofit agencies under a program established by legislation MACDC helped enact in 2007. Also, Morgan Stanley will soon make available $2 million in new funding based on an Agreement signed with Attorney General Coakley as a result of Morgan Stanley’s involvement in subprime lending. MACDC and CHAPA are working with the AG and Morgan Stanley to ensure that this funding is released in early 2011.

I wish the banks would modify more loans and I wish the federal government would put more pressure on the banks to do so. In the meantime, however, let’s recognize that high quality foreclosure counseling by non profits have combined with the HAMP program to save 12,154 homeowners in our state. We can be proud of that.

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Joe Kriesberg