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The Treasury Department vowed this week to publicly identify servicers in the Home Affordability Modification Program, or Hamp, that are not doing enough to help struggling homeowners. Those firms could be subject to undefined penalties.
But sources say the latest attempt by the Treasury to encourage servicers to modify more loans is unlikely to work because it does not address key underlying problems
But observers described the administration's action as window dressing, saying it is rising unemployment that is preventing servicers from converting more trial modifications into permanent, affordable loans, reports American Banker, a Collections & Credit Risk sister publication.
"The major problem right now is, it was designed for a different problem than we have now," said William Longbrake, a director of the $1.2 billion-asset First Financial Northwest, who helped design Hamp. "The program really needs to be redesigned to deal with problems created by unemployment and loss of income rather than poor underwriting and unaffordable interest rates."
Since the Treasury announced Hamp on March 4, 650,000 borrowers have gotten trial modifications that are converted to permanent, new loans after a borrower makes three consecutive payments.
But only 2,000 are likely to be made permanent, according to a congressional oversight board. The Treasury is expected to release its own data on permanent modifications this month, and a Treasury spokeswoman said this week that the figure would be in the "tens of thousands."
Before the data's release, the Treasury said, it would require the largest servicers to submit schedules of their plans to make trial modifications permanent. Servicers are to be required to supply additional documentation on the status of each modification as well as data on situations in which trial modifications did not result in permanent ones. The Treasury also plans to appoint a liaison to monitor servicers' progress.
Servicers failing to meet obligations will face "consequences, which could include monetary penalties and sanctions," according to a Treasury press release.
Michael Barr, the Treasury assistant secretary for financial institutions, declined to elaborate on potential penalties beyond saying that the administration would release data to the public specifying which servicers are falling behind.
