President Obama and his administration are floating an idea to prohibit lenders from foreclosing on a home unless the borrower has been considered for the government's Home Affordable Modification Program (HAMP).
The proposal would require servicers to initiate contact with all borrowers who are 60 or more days behind on their mortgage payments and offer them access to the federal modification program. Only after the homeowner has been screened under the HAMP guidelines and it is determined that the loan cannot be saved, could foreclosure proceedings commence. The proposal would also halt any foreclosures already in process once a borrower has been accepted into the trial phase of the program.
The proposal was reviewed by lenders last week on a White House conference call and ""prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,"" _Bloomberg News_ reported, citing a Treasury Department document outlining the plan.
Some lenders have been voluntarily suspending foreclosure proceedings while they evaluate a homeowner's eligibility for HAMP, but under the program's current guidelines there is no requirement to do so, and a number of homeowner advocacy groups have submitted complaints to the administration that even borrowers who are making their trial payments are being hit with foreclosure litigation.
A Treasury spokesperson confirmed that a foreclosure ban is under consideration, but stressed that it is one of many ideas on the table and has not been approved yet.
Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the governmentÃ¢â‚¬â„¢s modification program, told the _New York Times_ that even if the proposal came to pass, it would
not be Ã¢â‚¬Å“a major change. We think there is a large public relations element to this,Ã¢â‚¬Â she said.
As the _Times_ noted, the government could use some favorable public relations for its modification program. Lawmakers have begun to openly express their disappointment with the program. On Thursday, members of the House Committee on Oversight and Government Reform said matter-of-factly in a report, that by every practical measure, Ã¢â‚¬Å“HAMP has failed.Ã¢â‚¬Â
Reps. Darrell Issa (R-California) and Jim Jordan (R-Ohio) called the program a misuse of taxpayer money, the _Washington Post_ said. The program has been allocated $75 billion to pay incentives to servicers, investors, and borrowers for loan restructurings, but the paper says that so far only $15 million has been spent.
As of the end of January, 116,297 troubled mortgages had been permanently modified under HAMP. About 830,000 more were in the trial phase of the program. The administrationÃ¢â‚¬â„¢s goal is to help three to four million borrowers save their homes through the program by the end of 2012.
News of a draft document by the Treasury outlining additional changes to HAMP also circulated this week. Besides the proposed ban on foreclosures until after a HAMP review, the administration is also considering implementing a mandatory 30-day appeal period for borrowers that are denied a federal modification. Servicers would not be allowed to proceed with a foreclosure sale during this time.
The proposal would also require servicers to prove that they have made multiple attempts to contact delinquent borrowers both by phone and via written notices, and would require them to consider HAMP applications from homeowners that have already filed for bankruptcy.
Lenders have expressed concern that the proposed requirements would prolong foreclosure delays beyond the current 12 month timeline that it typically takes to resolve the loans that donÃ¢â‚¬â„¢t qualify for a modification.
Earlier this month at the American Securitization ForumÃ¢â‚¬â„¢s annual meeting, Seth Wheeler, a senior advisor at the Treasury Department, told mortgage bond investors and lenders that the administration is also considering revising HAMPÃ¢â‚¬â„¢s net present value (NPV) model in order to incorporate more principal writedowns into the equation. The NPV test is applied to determine if the mortgage owner can recoup more money by restructuring the loan or by foreclosing.