HAMP limitations frustrate homeowners trying to avoid foreclosure
Pat Cupido’s biggest wish last Christmas was to keep the three-bedroom ranch house where she had lived for 50 years.
Cupido and her husband refinanced their home in Jefferson Hills 11 years ago to pay off debts and help their daughters financially. But they couldn’t keep up with the $1,800 monthly payments when Cupido lost her civilian job with the Army Reserve.
She recalls discussing options the day after Christmas with her attorney and a representative from Atlanta-based Ocwen Loan Servicing, which handled her mortgage. At one point, she said, her attorney asked about the federal Home Affordable Modification Program.
“‘Billions of dollars were given to the banks to help people like her,’ ” Cupido, 71, remembered her attorney telling the representative.
But Cupido was disappointed to hear that the program known by its acronym, HAMP, couldn’t help. She and her husband, living on Social Security, did not qualify because their income is too high. Months behind on mortgage payments, they needed help to save their home.
Cupido’s experience underscores the public frustration and limits of the program, which is part of President Obama’s $75 billion housing market bailout. Five years since it debuted as the economy sputtered into a deep recession, the program has fallen short of expectations.
The Obama administration estimated 4 million struggling homeowners would get help modifying mortgages to make them affordable. Only a third of those have received permanent modifications, according to the U.S. Treasury.
Of $22.7 billion in federal bailout dollars allocated for HAMP, just $7 billion has been spent on incentives for loan servicers, investors and borrowers to modify loans, according to a report from a federal watchdog, the Special Inspector General for the Troubled Asset Relief Program.
Critics say HAMP is too rigid in its requirements. Many banks and investors who own mortgage loans instead steer borrowers into in-house programs with more flexibility in modifying loans.
“Almost any other loan modification program I know of is easier to get approved than HAMP,” said Dan Sullivan of Action Housing, a social services organization.
The “real killer,” Sullivan said, is the income threshold. That requirement forces banks to reject homeowners if their mortgage payment isn’t above 31 percent of their gross income. Sullivan and others say that threshold is too high and doesn’t account for all the reasons people fell behind on payments.
“If you had a temporary situation of unemployment and then you’re back (employed), you’re over that 31 percent threshold but your payments are still behind,” said Devon March, a housing counselor at NeighborWorks Western Pennsylvania. “Once you get back, then what?”
The Treasury had to draw the line somewhere, said Pete Mills of the Mortgage Bankers Association. In setting the bar, Treasury balanced considerations for borrowers against those for investors.
“It had to be set low enough for borrowers to afford — 31 percent is considered to be a safe qualifying ratio for a new homebuyer,” Mills said. “But it also had to be high enough that the cash flow would provide investors a better alternative than going into foreclosure.”
There are other concerns for people trying to modify loans.
Mortgage servicers do not act fast enough on applications, leaving them in limbo and at risk for foreclosure, the Special Inspector General report said. As of May, more than 221,000 homeowners were awaiting decisions about assistance.
Many would be denied, wasting months without pursuing alternatives, the report said. On average, it took more than three months to process homeowner requests.
During the mortgage crisis, many homeowners faced foreclosure even as they sought loan modifications.
This “dual-tracking” left their fate to the process completed first.
The Consumer Financial Protection Bureau this year began requiring banks to halt the foreclosure process until a decision on a HAMP application.
Cupido was in the midst of a trial modification that lowered the monthly payment to $847 when she asked about HAMP. She thought it would be better than the in-house program for which she was approved.
But it made matters worse, halting a process that could have led to help while she was considered for a program that rejected her.
Flexibility on the income threshold, perhaps having state-by-state criteria, might have broadened the HAMP program’s reach, said Eric Selk, executive director for Hope Now, an alliance of mortgage servicers, insurers and nonprofit counselors.
But the program couldn’t be that complex.
“If you want to get something approved, you had to make it simple, quick to market, and they did that,” Selk said.
HAMP’s rigidity not only restricted homeowners but made it less appealing to banks. Dollar Bank chose not to offer HAMP modifications for loans.
“One size sort of fits all on a HAMP, and (Dollar) Bank believes every borrower is an individual borrower and their situation needs to be looked at individually,” said Joan Ickes, vice president of retail loan servicing.
Lenders’ in-house loan modifications are more common. Of roughly 772,000 modifications completed in the past year, only 27 percent were through HAMP, according to Hope Now.
Selk does not believe HAMP is a complete failure. It helped more than 1 million people. And Mills, of the SBA, said it provided a framework for loan programs.
There is less need for HAMP, Selk said, as demand for modifications wanes with improvements in the housing market and overall economy.
“If you’re saying HAMP is antiquated, you’re probably right,” Selk said. “But that’s how much the market has changed in four years.”
Ocwen, the country’s biggest non-bank mortgage servicer, bought Cupido’s mortgage loan last summer. The company attracted regulatory scrutiny and last year settled with the Consumer Financial Protection Bureau for $2.1 billion for alleged misconduct in dealing with homeowners in default, including deceiving them about foreclosure alternatives and charging unauthorized fees.
It is dealing with a “massive backlog in unprocessed HAMP applications,” according to the Special Inspector General.
Ocwen did not respond to messages seeking comment.
A new servicer took over Cupido’s loan on Sept. 1.
“I’m very pessimistic about everything,” she said.
Chris Fleisher is a Trib Total Media staff writer. Reach him at 412-320-7854 or firstname.lastname@example.org.