A panel of experts at the Servicing Lab at the Five Star Conference on Tuesday agreed that in order for loss mitigation to be effective in 2014 and heading into the future, servicers must find new and inventive ways to execute loan modification.
One of the topics tackled in the section of the lab entitled "Pursuing Inventive Loss Mitigation" was the fact that despite the government extending its Home Affordable Modification Program (HAMP) until December 2016, fewer and fewer homeowners are taking advantage of the HAMP program for a loan modification.
According to Making Homes Affordable's website, "HAMP is designed to provide deep and meaningful savings for homeowners devastated by unaffordable increases in expenses or reductions in income." Since HAMP began in 2009 in response to the mortgage crisis, about 1.3 million borrowers have modified their loans with the program. But Matt Slonaker of SolutionStar pointed out to the audience that 70 percent of those modifications occurred between 2009 and 2011, and by 2013, the number had dropped down to 20 percent. Next year, he said, the percentage of HAMP modifications is expected to be at 10 percent if it continues its current pace.
Why are fewer people turning to HAMP to make their home loans more affordable, as the program was intended to do?
"Almost half of the homeowners (who modified their loans with HAMP) said they found the reduction in their monthly payment to be minimal,” Slonaker said. "About 44 percent said the relief HAMP provided was not sufficient.”
Borrowers may simply not be educated about the loan modification process and may have misconceptions about it, which could be driving the HAMP numbers down or causing the dissatisfaction among borrowers and in turn causing a greater need for transparency from the government, servicers, and lenders.
With nearly half of the homeowners who modified loans using HAMP not satisfied, the need to be creative arises. All on the panel agreed that communication with borrowers is essential in order to determine what would be an effective loan modification – and when borrowers become difficult to reach for whatever reason, the communication breakdown can be a roadblock to success.
"There aren't enough phone conversations with borrowers to find out what they can afford," Andy Laing of Fay Servicing said, pointing out that his company offers 14 different programs to help borrowers avoid foreclosure. "The problem is that 60 percent of the folks who go to foreclosure, we couldn't contact them."
Slonaker said he went and physically knocked on the door of dozens of homes that were near foreclosure or candidates for loan modification, and he said that most of them wanted to keep their homes because they did not want to uproot their families, or they liked the area.
One of the inventive ways to modify loans is offering a streamlined loan modification program, Slonaker said. For loans that are 90 days delinquent, they issue a note to the servicer and inform them of a "trial payment plan" in which the borrower's loan is automatically modified if the borrower can make three consecutive on-time payments.