WASHINGTON – Oct. 26, 2010 – The number of struggling homeowners who cut their mortgage payments in September through an Obama administration initiative fell to its lowest level in nearly a year, increasing debate about the program’s effectiveness.
Nearly 28,000 homeowners reached agreements with mortgage servicers last month to permanently modify mortgages under the Home Affordable Modification Program (HAMP), a government report Monday shows. That’s down from the record 68,000 modifications in April and the lowest number since November, shortly after HAMP launched.
“HAMP has been to date a disappointment,” said Moody Analytics’ chief economist Mark Zandi, adding that it is “set to fall well short of expectations.”
Joel Naroff of Naroff Economic Advisors said he is “totally baffled” by the decline. “It’s not as if the need has dropped.”
HAMP aims to reduce mortgage payments for up to 4 million homeowners. As of Sept. 30, 467,000 people had permanently lowered their payments through HAMP, Monday’s Treasury report shows.
Timothy Massad, Treasury’s acting assistant secretary for financial stability, said HAMP is encouraging lenders to modify mortgages on their own. “We’ve seen the industry emulate a lot of the HAMP standards in their own proprietary (mortgage) modifications,” Massad said. “We’re having an effect on avoiding foreclosures.”
HAMP encourages mortgage servicers to take steps such as lowering a homeowner’s interest rate or reducing mortgage principal. Homeowners first get temporary modifications that last at least three months and can receive a permanent modification if the trial succeeds.
A large number of homeowners applied in the program’s early months, which led to a surge in permanent modifications from January to June as Treasury officials processed a backlog, Massad said. Applicants have since leveled off, which accounts for the drop in permanent modifications, Massad said.
Massad noted that 11 percent of homeowners in HAMP had defaulted on their modified mortgages, a figure he called “very good. The vast majority of people in permanent modifications are staying in them.”
But the foreclosure problem remains “incredibly complex,” and HAMP has been “a work in progress” with program changes that have made it difficult for servicers to implement, Zandi said.
The report Monday said Bank of America took 73 seconds to answer HAMP-related calls in August, well above the 5.5-second average call-response time.
“We’re disappointed,” bank spokesman Roger Simon said, calling August a “high-volume month.”
He said its response time through mid-September is “down considerably.”