WASHINGTON — Mortgage servicers on Thursday told House lawmakers that consecutive changes to the Treasury Department's foreclosure prevention program have made it increasingly difficult to keep distressed borrowers in their homes.
Real-estate financial services consultant Edward Pinto described the Home Affordable Modification Program in two words: "numbing complexity."
"At last count, HAMP had 800 requirements and servicers are expected to certify compliance," he said. "With ever changing regulations, a constant need to re-evaluate past decisions in light of new regulations, and multiple appeals, it is no wonder that the HAMP pipeline became clogged through no substantial fault of servicers."
HAMP was created to help financially strained borrowers avoid foreclosure, but the program's lackluster performance has been mired in controversy, as some lawmakers are questioning whether the program should remain ongoing.
On Thursday, members of the House Oversight and Government Reform Committee held the second of two hearings to assess HAMP's progress. This latest hearing primarily focuses on what servicers are doing to ensure borrowers receive adequate relief.
Pinto, who served as Fannie Mae's chief credit officer from 1987-1989, testified before the committee, along with J.P. Morgan Chase & Co.'s head of home lending, David Lowman, and CitiMortgage Chief Executive Sanjiv Das. CitiMortgage is a unit of Citigroup Inc. Bank of America executive Barbara Desoer and Wells Fargo & Co. executive Michael Heid were among others testifying.
According to Treasury's most recent data, nearly one out of four homeowners offered help under the program have fallen out of HAMP. About 1.2 million trial modifications had been started under the plan and about 281,000 homeowners had been dropped by the end of April.
Many borrowers were expecting a mortgage modification when they ultimately didn't qualify, Wells Fargo's Heid said, adding that a lack of income documentation and failure to make all the trial modification payments were the primary reasons some borrowers failed to receive a permanent modification.
Heid, echoing frustration expressed by Pinto, slammed HAMP guidelines and provided a "partial list" of more than 20 changes to the program since its inception in February 2009. "This has contributed to a level of complexity that has been difficult for customers to understand and for services to communicate and execute," Heid said.
At the first hearing in March, Herbert Allison, Treasury's assistant secretary for financial stability, acknowledged the program has had issues, including problems at some mortgage servicers, the difficulty for some borrowers to provide needed documentation, and "a process that has proven more complex administratively than originally conceived."
The servicers, however, made several positive remarks about the program providing relief to many Americans. Still, they remain concerned that HAMP fails to address the financial circumstances and hardships of all borrowers.
The mortgage servicers told lawmakers that HAMP isn't the only option, and each of them outlined their respective plans to assist borrowers with in-house initiatives that could be tailored to the needs of specific borrowers.
Pinto projected that the overall success of HAMP is likely to negatively impacted by high re-default rates. Pinto's permanent mortgage re-default rate forecast is ten percentage points below the 50% that's been projected by other mortgage sector observers.
Pinto based his projection on two statistics: most HAMP permanent modifications being made on loans with mortgage balances in excess of current home values and borrowers that received a permanent modification through May 2010 having a median total debt-to-income ratio of 64%.
"This leaves little money for food, clothing, taxes and other expenses," Pinto said. "As a result, these borrowers are a worn out furnace or roof replacement away from re-default."