The Obama Administration is doing everything it can to help minimize the effects of the ongoing mortgage crisis. The Home Affordable Modification Program is one of its noteworthy actions designed to keep borrowers in their homes by modifying at-risk mortgages.
Unfortunately, at the end of December, the Treasury Department reported that of the original 728,000 modification trials underway, only 31,382 mortgages had been permanently modified since details of HAMP were released in March 2009.
While I applaud the efforts of the administration to address the foreclosure crisis head on, in order for HAMP to work, the inefficient use of paper must be eliminated from the verification and documentation process. Lengthy delays caused by physical documents are literally clogging up the HAMP pipeline and preventing the timely modification of at-risk loans.
The problem is not that banks are dragging their feet on processing loan modifications, but rather, that they are unable to efficiently reach out and communicate with the very borrowers that are in need of help. In order to complete the process, there is a host of compliance documentation to meet in determining borrower eligibility and permanently converting those borrowers into HAMP loan modifications. It is relatively impossible for banks, servicers and other parties to successfully coordinate their efforts and meet the time requirements outlined by the Treasury Department without moving away from the cumbersome, paper-based processes that have traditionally been used.
Despite some technological gains within the industry over the past few years, the majority of banks and servicers still mail paper documents to borrowers. Banks did not expect to perform so many modifications. No one had the time to develop, purchase or implement technology solutions. That being said, this is the "new normal" and banks must face the fact that modifications are very likely a part of future loan workouts.
To that end, the paper in the process itself adds time and expense to the process, but the entire loan modification then grinds to a halt when the borrower either does not receive the documents, receives the documents but does not fill them out properly or simply does not respond to the bank or servicer at all.
For HAMP to work in the way that the Treasury, borrowers, banks and servicers all want, this enormous paper shuffle must be replaced with an automated means of communication that enables all parties to review and contribute to loan documents from a single screen.
E-documentation and completion of HAMP processes would be very similar to e-mortgage practices that are being adopted by large institutions. Borrowers would be emailed a link that allows them to securely access, fill out and return required mortgage documents online. Financial institutions that own components of the securities also could electronically access documents that require due diligence on their end.
Banks can implement electronic "paperwork" using existing systems. Systems today can convert existing printed documents to electronically processed forms and place them on the Web in real time. Once electronic, the forms can be processed during the initial borrower discussion, rather than days later.
Some institutions have already made a shift toward a more electronic process in their loan origination departments. Wells Fargo, Bank of America and CitiMortgage have all begun using electronic mortgage documentation to process more traditional originations. Electronic documentation and communication could be used in the same way to help expedite the HAMP loan modification process. Electronic modifications just make more sense in helping people by making the paperwork a nonissue.
Banks have been ponderous in their adoption of new Web-based technologies. The fact is, almost every major retail chain has a means to purchase their product online, except for banks, many of which neither accept online deposits nor produce online loans. Banks employ a fair bit of technology on the early loan origination process, but almost none after origination.
This latest HAMP challenge proves the banking industry's stultifying adoption of modern Web-based technologies has a real cost that greatly exceeds the price.
The government's HAMP program is definitely a step in the right direction. But, if it wants to speed up the modification process, the archaic use of paper must be replaced by an electronic, more efficient means of communication.