Alternative Programmes to Prevent Foreclosure crowding out HAMP
By tracking the progress of HAMP, the government modification programme to contain foreclosures one gets the impression that the programme is a total failure. In May there were five times more dropouts than entrants. In May both trial and permanent modification numbers fell.
One of the reasons for the failure of HAMP is that the modification programme being offered by the banks and their servicers is more attractive; this is making the government plan automatically redundant.
Another session on HAMP was held by The House Committee for Oversight and Government Reform last Thursday – 25th June. At the hearing testimony was given by the representatives of the important five servicers. During it Rep Jim Jordan (Republican/Ohio) wanted to know the portion that had been permanently modified. The results were anything but satisfactory. Out of the total modifications done only 7% came under the HAMP plan. The scales had tipped in favour of the private modifications in a big way.
Jordan further wanted to know if the borrowers who were eligible for HAMP refused their private programme. The answer was that this was very rare. The servicers have reached a good degree of success for those borrowers who even failed to qualify for HAMP.
Sanjiv Das said, “Let’s put it this way, for the people who fell out of HAMP, we were able to save about 15% more.” Michael J. Heid of Wells Fargo said that about 70% to 80% of the cancellations of HAMP are because of other alternatives entering the market so as to avoid foreclosure.
Jordan concluded that from the very start perhaps HAMP was not necessary. If the negligible few who had succeeded in getting loans permanently modified by HAMP would have also been eligible for alternative modifications then what was the point in any case? It apparently does not speak well about the proper spending of $75 billion.
But despite the logic there is another angle of view. The insistence of the government in pushing modifications through HAMP might have given the impetus to the lenders to come forward with alternative plans and make these succeed. When the servicers understood that HAMP would be enforced upon them because they had received bailout dollars, they crafted their own programmes for modification.
But whatever that may be, $75 billion is a hefty amount to give the nudge to the private sector that would have anyway landed at the same point. The programme of the government replete with incentives for investors, servicers as well as the borrowers failed whereas the private plan sans any carrots succeeded. It does not go down well for the government.
