On December 31st, the Home Affordable Modification Program will come to an end. Established in 2009 in response to the housing crisis, the program has worked to provide financial incentives to homeowners, servicers, and investors to modify the first lien mortgage of qualified borrowers behind on their mortgage payments, or in danger of default. Now that the housing market has recovered, the need for HAMP modifications has greatly decreased.
Throughout its existence, HAMP has provided consistency and unification to servicers on loan modifications that have been adopted by the top servicer shops. In comparison to proprietary loan modifications (non-HAMP modifications), as of the last completed year, HAMP loans accounted for 50 percent of all loan modifications.
As the program is in its final days, though, according to a recent report from Fitch Ratings, proprietary loan modifications will be used more frequently and this could impact the servicing world in both a positive and negative light.
The report indicates that proprietary modifications could lead to less consistency of servicer modification approaches.
“Proprietary loan modifications also offer relief and in general require less documentation than the HAMP programs,” says the report. “Borrowers applying for modifications in 2017 may find greater ease in the documentation gathering process and faster approval/decline decisions. However, features of proprietary modifications differ across servicers and this can be further impacted by approaches taken by the investors in the loans.”
To ensure that consistency remains a top priority in the loan modification process, the CFPB recently released “consumer protection principles” to assist those industry-wide working to develop new foreclosure relief solutions.
“We aim to help consumers avoid foreclosures, which upset their personal and financial lives,” said CFPB Director Richard Cordray in the Bureau’s release. “The modification program was put in place to provide alternatives to foreclosure. Our principles will serve as helpful guardrails for servicers, investors, and regulators to consider as we continue to protect consumers who are struggling to pay their mortgages.”
As thought leaders and policymakers in the industry work to streamline loan modifications in anticipation of the time post-HAMP, Fitch Ratings does believe there will be benefits to the end of the program. Specifically, the report states that modification decision timelines could shorten with the greater use of proprietary modifications.
“The end of HAMP removes this initial step and servicers will likely be able to make faster modification decisions,” says the report. “This may contribute to shorter liquidation timelines for the portion of loans that do not qualify for proprietary modifications.”