[1]By George FitzGerald
The Home Affordable Modification Program (HAMP [2]), as established by the Department of the Treasury [3], which was previously scheduled to expire on December 31, 2015, has been extended through the end of 2016. This continuation will allow homeowners who may be struggling with their mortgage payments on loans owned by Fannie Mae [4] or Freddie Mac [5], or serviced by a participating mortgage company, to seek relief through a HAMP loan modification.
While this extension is good news for families that are in a difficult financial situation between now and the end of next year, HAMP is unlikely to be extended beyond 2016, according to FHFA [6]Director Mel Watt. HAMP loan modification options were never intended to be permanent, and will eventually be phased out. However, this doesn’t mean that homeowners who find that they can’t make their mortgage loan payments will have no other options but to default on their loan.
The Evolution of Loss Mitigation Norms
Prior to 2009, when HAMP was first introduced, mortgage companies had no standardized framework for offering struggling homeowners a loan modification to help reduce their monthly payment. There was no mechanism by which servicers and investors could agree to modify the terms of a mortgage loan; there was no precedent for reducing the principal or interest rate, or for extending the term of the loan; and there was no process for tracking and accounting for changes like these over time.
HAMP has laid the foundation for loss mitigation in the mortgage industry that will far outlast its extension to December 2016.
As a result, with occasional exceptions, the mortgage industry typically followed the well-worn path of sending repeated late payment notices, adding on late fees, and eventually foreclosing on properties when homeowners couldn’t make their payments. However, with the introduction of HAMP, the industry was given other options to work with, and shifted its focus from foreclosure to keeping homeowners in their homes if at all possible.
HAMP has laid the foundation for loss mitigation in the mortgage industry that will far outlast its extension to December 2016. It has enabled the industry to evolve its loss mitigation norms by helping to define a process that uses income to drive to a specific debt-to-income level, and it is likely that modifications beyond HAMP will continue to occur on this basis.
Foreclosure Avoidance Now the Standard
Today, foreclosure volumes continue to recede, but it is unlikely that the nation will ever see zero delinquencies. However, the concept of the HAMP modification has laid the foundation for the development of future modification programs, whether developed by financial institutions themselves or by the government. Either way, the industry will continue to be dedicated to exhausting all loss mitigation options in an effort to avoid foreclosure. It is not just a worthy goal, but it has become a standard, permanent part of the servicing process across the nation.