Early data shows permanent loan modifications granted by lenders under the Home Affordable Modification Program (HAMP) are performing well over time, with nine out of 10 borrowers granted modifications still in the program nine months later.

But critics say far too few borrowers have been able to obtain permanant HAMP modifications, and that the Obama administration has been unwilling to recognize the program’s shortcomings. 

In its latest report detailing HAMP performance through September, the Treasury Department said that after nine months, 11 percent of borrowers granted permanent loan modifications had redefaulted, missing three or more consecutive payments. Another 4.6 percent had missed two or more payments but hadn’t been disqualified from the program.

The numbers are preliminary, because while nearly 500,000 borrowers had been granted permanent HAMP loan modifications, only 55,957 of those modifications had undergone nine months of "seasoning" at the end of September.

Among the 205,619 HAMP loan modifications with at least six months of seasoning, about 5.5 percent had washed out of the program and another 4.3 percent were two payments behind.

Homeowners granted permanent HAMP loan mods saw housing expenses from a first-lien mortgage fall from a median of 45 percent of their monthly income before a modification to 31 percent after. The median monthly payment reduction was 36 percent, or more than $500 per month.

But the report also showed the number of borrowers granted permanent HAMP loan modifications fell 16.5 percent from August to September, to 27,840. The number of trial loan modifications picked up by 32.5 percent, however, to 35,297.

Data for all participating HAMP loan servicers through September shows 1.37 million borrowers had been granted HAMP trial loan modifications since the program’s inception. Of those, 699,924 had been canceled and 173,592 were still active.

Another 4495,989 borrowers had made the transition to permanent HAMP loan modifications, with 29,190 cancellations through the end of September.

The report includes a breakdown of what’s happened to roughly 1.25 million borrowers who were rejected for or dropped out of HAMP trial loan modifications offered by the eight largest HAMP loan servicers including Bank of America, JP Morgan Chase and Wells Fargo.

Since the program’s inception and through the end of August, the eight largest HAMP loan servicers had canceled 524,695 HAMP trial loan modifications and rejected 723,839 applications for HAMP trial loan modifications.

Most of those borrowers have managed to avoid foreclosure by obtaining an alternative loan modification outside of the HAMP program (36.4 percent), becoming current on their loan (15.7 percent), or negotiating a short sale or deed-in-lieu of foreclosure (5.8 percent).

About 16.6 percent had lost their homes through the end of August, while 12.8 percent were in the foreclosure process. Further action was pending against 18.2 percent of that group, or 227,266 borrowers.

In a separate "Housing Scorecard" report, the Obama administration noted that 7.1 million homeowners have refinanced their mortgages from April 1, 2009, through the end of August 2010, and 3.52 million mortgage modifications have been initiated during the same period — nearly triple the 1.3 million completed foreclosures over that period.

Those loan modifications included 1.6 million loan modifications offered by lenders participating in the HOPE Now initiative, and 510,000 Federal Housing Administration loss mitigation and early delinquency interventions. Some homeowners may have received help from more than one program, the scorecard noted.

In its latest quarterly report to Congress, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) raised doubts about whether HAMP will ever meet its original goal of helping 3 million to 4 million homeowners avoid foreclosure by reducing their monthly payments to sustainable levels.

Lacking benchmarks demonstrating progress in meeting that goal, "Treasury is reduced to now trying to define every single one of the nearly 700,000 HAMP trial modification failures as ‘successes,’ " the SIGTARP report said.

Treasury’s claim that all borrowers who have been granted temporary loan modifications received a "significant benefit" is either "hopelessly out of touch with the real harm that has been inflicted on many families, or a cynical attempt to define failure as success," the report concluded. Worse yet, that position may preclude Treasury officials from making needed changes to the program.

Calls by HAMP borrowers to a SIGTARP hot line and media reports show failed HAMP loan modifications may actually inflict harm on borrowers, the report said, with families unnecessarily depleting savings in a futile effort to obtain a permanent loan modification.

Failed trial modifications can leave borrowers owing more principal on their loan, and with less home equity and worse credit scores, the report said. Some borrowers who have never missed a payment may face back payments, penalties and late fees on modified  mortgages that they can’t pay, resulting in the loss of their home.

The Congressional Oversight Panel for the Troubled Asset Relief Program and the U.S. Government Accountability Office have also been critical of HAMP.

"As currently structured, HAMP appears capable of preventing only a fraction of foreclosures," the oversight panel concluded in a December 2009 report, when the program was still in its first year.

In a June report, the GAO said the Treasury Department was slow in issuing guidelines for some critical aspects of the HAMP program, resulting in inconsistencies in how servicers were treating borrowers that could lead to inequitable treatment.   

The oversight panel will hold a hearing tomorrow to gather information for its next report, which is due out in November. The report will assess the progress of Treasury’s foreclosure mitigation programs, and the impacts of the "robo-signing" controversy on those programs and the financial sector in general.

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