Troubled Asset Relief Program
Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program Gao ID: GAO-11-288 March 17, 2011Two years after the Department of the Treasury (Treasury) first made available up to $50 billion for the Making Home Affordable (MHA) program, foreclosure rates remain at historically high levels. Treasury recently introduced several new programs intended to further help homeowners. This report examines (1) the status of three of these new programs, (2) characteristics of homeowners with first-lien modifications from the Home Affordable Modification Program (HAMP), and (3) the outcomes for borrowers who were denied or fell out of first-lien modifications. To address these questions, GAO analyzed data from Treasury and six large MHA servicers.
The implementation of Treasury's programs to reduce or eliminate second-lien mortgages, encourage the use of short sales or deeds-in-lieu, and stimulate the forgiveness of principal has been slow and limited activity has been reported to date. This slow pace is attributed in part to several implementation challenges. For example, servicers told GAO that the start of the second-lien modification program had been slow due to problems with the database Treasury required them to use to identify potentially eligible loans. Additionally, borrowers may not be aware of their potential eligibility for the program. While Treasury recently revised its guidelines to allow servicers to bypass the database for certain loans, servicers could do more to alert HAMP first-lien modification borrowers about the new second-lien program. Implementation of the foreclosure alternatives program has also been slow due to program restrictions, such as the requirement that borrowers be evaluated for a first-lien modification even if they have already identified a potential buyer for a short sale. Although Treasury has recently taken action to address some of these concerns, the potential effects of its changes remain unclear. In addition, Treasury has not fully incorporated into its new programs key lessons from its first-lien modification program. For example, it has not obtained all required documentation to demonstrate that servicers have the capacity to successfully implement the newer programs. As a result, servicers' ability to effectively offer troubled homeowners second-lien modifications, foreclosure alternatives, and principal reductions is unclear. Finally, Treasury has not implemented GAO's June 2010 recommendation that it establish goals and effective performance measures for these programs. Without performance measures and goals, Treasury will not be able to effectively assess the outcomes of these programs. Treasury's data provide important insights into the characteristics of borrowers participating in the HAMP first-lien modification program, but data were sometimes missing or questionable. More homeowners have been denied or canceled from HAMP trial loan modifications than have received permanent modifications. To understand which borrowers HAMP has been able to help, GAO looked at Treasury's data on borrowers in HAMP trial and permanent modifications. These data showed that HAMP borrowers had reduced income and high debt, but the reliability and integrity of some of Treasury's information was questionable. GAO recommends that Treasury require servicers to advise borrowers to contact servicers about second-lien modifications and ensure that servicers demonstrate the capacity to successfully implement Treasury's new programs. GAO also recommends that Treasury consider methods to better capture outcomes for borrowers denied or canceled from HAMP first-lien modifications. Treasury acknowledged challenges faced by servicers in implementing the program, but felt that certain criticisms of MHA were unwarranted. However, we continue to believe that further action is needed to better ensure the effectiveness of these programs.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Mathew J. Scire Team: Government Accountability Office: Financial Markets and Community Investment Phone: (202) 512-6794GAO-11-288, Troubled Asset Relief Program: Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program
This is the accessible text file for GAO report number GAO-11-288
entitled 'Troubled Asset Relief Program: Treasury Continues to Face
Implementation Challenges and Data Weaknesses in Its Making Home
Affordable Program' which was released on March 17, 2011.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to Congressional Committees:
March 2011:
Troubled Asset Relief Program:
Treasury Continues to Face Implementation Challenges and Data
Weaknesses in Its Making Home Affordable Program:
GAO-11-288:
GAO Highlights:
Highlights of GAO-11-288, a report to congressional committees.
Why GAO Did This Study:
Two years after the Department of the Treasury (Treasury) first made
available up to $50 billion for the Making Home Affordable (MHA)
program, foreclosure rates remain at historically high levels.
Treasury recently introduced several new programs intended to further
help homeowners. This report examines (1) the status of three of these
new programs, (2) characteristics of homeowners with first-lien
modifications from the Home Affordable Modification Program (HAMP),
and (3) the outcomes for borrowers who were denied or fell out of
first-lien modifications. To address these questions, GAO analyzed
data from Treasury and six large MHA servicers.
What GAO Found:
The implementation of Treasury‘s programs to reduce or eliminate
second-lien mortgages, encourage the use of short sales or deeds-in-
lieu, and stimulate the forgiveness of principal has been slow and
limited activity has been reported to date (see table). This slow pace
is attributed in part to several implementation challenges. For
example, servicers told GAO that the start of the second-lien
modification program had been slow due to problems with the database
Treasury required them to use to identify potentially eligible loans.
Additionally, borrowers may not be aware of their potential
eligibility for the program. While Treasury recently revised its
guidelines to allow servicers to bypass the database for certain
loans, servicers could do more to alert HAMP first-lien modification
borrowers about the new second-lien program. Implementation of the
foreclosure alternatives program has also been slow due to program
restrictions, such as the requirement that borrowers be evaluated for
a first-lien modification even if they have already identified a
potential buyer for a short sale. Although Treasury has recently taken
action to address some of these concerns, the potential effects of its
changes remain unclear.
In addition, Treasury has not fully incorporated into its new programs
key lessons from its first-lien modification program. For example, it
has not obtained all required documentation to demonstrate that
servicers have the capacity to successfully implement the newer
programs. As a result, servicers‘ ability to effectively offer
troubled homeowners second-lien modifications, foreclosure
alternatives, and principal reductions is unclear. Finally, Treasury
has not implemented GAO‘s June 2010 recommendation that it establish
goals and effective performance measures for these programs. Without
performance measures and goals, Treasury will not be able to
effectively assess the outcomes of these programs.
Table: Activity Under the Second-lien, Foreclosure Alternative, and
Principal Reduction Programs as of December 31, 2010:
Program: Second-lien Modification;
Date announced: March 2009;
Implementation date: March 2010;
Funding allocation: Nearly $133 million;
Reported activity as of December 31, 2010: $2.9 million in incentives
paid.
Program: Home Affordable Foreclosure Alternatives;
Date announced: March 2009;
Implementation date: April 5, 2010;
Funding allocation: $4.1 billion;
Reported activity as of December 31, 2010: $9.5 million in incentives
paid.
Program: Principal Reduction Alternative;
Date announced: March 2010;
Implementation date: October 1, 2010;
Funding allocation: $2.0 billion;
Reported activity as of December 31, 2010: Activity not yet reported[A]
Source: Treasury.
[A] PRA incentives are paid on an annual basis contingent upon
successful performance of the modified mortgage during the preceding
12 months.
[End of table]
Treasury‘s data provide important insights into the characteristics of
borrowers participating in the HAMP first-lien modification program,
but data were sometimes missing or questionable. As shown in the
figure, more homeowners have been denied or canceled from HAMP trial
loan modifications than have received permanent modifications. To
understand which borrowers HAMP has been able to help, GAO looked at
Treasury‘s data on borrowers in HAMP trial and permanent
modifications. These data showed that HAMP borrowers had reduced
income and high debt, but the reliability and integrity of some of
Treasury‘s information was questionable. For example, Treasury‘s data
on borrowers‘ loan-to-value ratios at the time of modification ranged
from 0 to 999, with 1 percent of TARP-funded active permanent
modifications reporting ratios over 400 percent. In addition, race and
ethnicity data were not available for a significant portion of
borrowers. Treasury said that it was refining and strengthening data
quality checks and that the data have improved and will continue to
improve over time. Treasury‘s success in improving the quality and
completeness of HAMP data will be critical to its ability to evaluate
program results and achieve the goals of preserving homeownership and
protecting home values.
While it appears that most borrowers who were denied or canceled from
HAMP first-lien trial modifications have been able to avoid
foreclosure to date, weaknesses in how Treasury requires servicers to
report data make it difficult to understand what ultimately happens to
these borrowers. First, Treasury‘s system for reporting outcomes
requires servicers to place borrowers in only one category, even when
borrowers are being evaluated for several possible outcomes, with
proprietary modifications reported first. As a result, the proportion
of borrowers reported receiving proprietary modifications is likely to
be overstated relative to other possible outcomes, such as foreclosure
starts. Further, Treasury does not require servicers to distinguish
between completed and pending actions, so that some reported outcomes
may not be clear. Without more accurate information on the outcomes of
borrowers who are denied HAMP modifications, have them canceled, or
redefault, Treasury‘s ability to determine whether further action is
needed to assist struggling homeowners is diminished.
Figure: Number of Active and Canceled Trial and Permanent
Modifications through January 2011:
Active trial modifications: 145,260;
Active permanent modifications: 539,493;
Trial modifications canceled: 740,240;
Permanent modifications canceled: 68,114.
Source: Treasury.
[End of figure]
What GAO Recommends:
GAO recommends that Treasury require servicers to advise borrowers to
contact servicers about second-lien modifications and ensure that
servicers demonstrate the capacity to successfully implement
Treasury‘s new programs. GAO also recommends that Treasury consider
methods to better capture outcomes for borrowers denied or canceled
from HAMP first-lien modifications. Treasury acknowledged challenges
faced by servicers in implementing the program, but felt that certain
criticisms of MHA were unwarranted. However, we continue to believe
that further action is needed to better ensure the effectiveness of
these programs.
View [hyperlink, http://www.gao.gov/products/GAO-11-288] or key
components. For more information, contact Mathew J. Scirč at (202) 512-
8678 or sciremj@gao.gov.
[End of section]
Contents:
Letter:
Background:
Implementation of Treasury's Newer Housing Programs Has Been Slow and
Capacity of Servicers to Carry Out These Programs Remains Unclear,
Raising Uncertainty About the Potential Impact of These Programs:
Treasury Has Some Data on the Characteristics of Borrowers in HAMP's
First-Lien Program, but Data Were Sometimes Missing or Questionable:
Most Borrowers Denied or Canceled from Trial Modifications Appear to
Have Avoided Foreclosure To Date, but Weaknesses in Treasury's Data
Collection Limit its Ability to Understand the Outcomes of These
Borrowers:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Description of GAO's Econometric Analysis of HAMP Trial
Loans Modifications Cancellations:
Appendix III: Comments from the Department of the Treasury:
Appendix IV: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Selected Outcomes of Borrowers who Had a Canceled HAMP Trial
Modification by Servicer, through August 31, 2010:
Table 2: Terms of Selected Proprietary Modification Programs Compared
to HAMP:
Table 3: Summary Statistics of Variables Used in Regression:
Table 4: Probabilistic Estimates of HAMP Trial Loan Modification
Cancellation Rates:
Figures:
Figure 1: National Default and Foreclosure Trends from Calendar Years
1979-2010:
Figure 2: GSE and Non-GSE HAMP Trial and Permanent Modifications Made
and Canceled Each Month, through January 2011:
Figure 3: Timeline of 2MP, HAFA, and PRA Guidance:
Figure 4: Estimated Decrease/Increase in Likelihood of Cancellation of
HAMP Trial Modification by Borrower and Loan Characteristics:
Figure 5: Outcomes of Borrowers Denied a HAMP Trial Modification,
through August 31, 2010 (Six large MHA servicers):
Figure 6: Outcomes of Borrowers who Had a Canceled HAMP Trial
Modification, through August 31, 2010 (Six large MHA servicers):
Figure 7: Outcomes of Borrowers Who Redefaulted on a HAMP Permanent
Modification, through August 31, 2010 (Six large MHA servicers):
Figure 8: Number of Proprietary and HAMP Modifications Started Each
Month, January through December 2010:
Figure 9: Estimated Change in Likelihood of Cancellation of HAMP Trial
Loan Modification by Servicer, Delinquency Status Before Modification:
Figure 10: Estimated Change in Likelihood of Cancellation of HAMP
Trial Loan Modification by State:
Abbreviations:
2MP: Second-Lien Modification Program:
DTI: debt-to-income ratio:
FDIC: Federal Deposit Insurance Corporation:
FHA: Federal Housing Administration:
GSE: government-sponsored enterprise:
HAFA: Home Affordable Foreclosure Alternatives Program:
HAMP: Home Affordable Modification Program:
HPO: Homeownership Preservation Office:
HUD: Department of Housing and Urban Development:
IR/2: Investor Reporting/2:
LTV: loan-to-value:
LPS: Lender Processing Services:
MHA: Making Home Affordable:
MHA-C: Making Home Affordable-Compliance:
MLTV: mark-to-market loan-to-value:
NPV: net present value:
OCC: Office of the Comptroller of the Currency:
OFS: Office of Financial Stability:
OTS: Office of Thrift Supervision:
PRA: Principal Reduction Alternative:
SIGTARP: Office of the Special Inspector General for TARP:
SPA: Servicer Participation Agreement:
TARP: Troubled Asset Relief Program:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 17, 2011:
Congressional Committees:
Since the Department of the Treasury (Treasury) first announced the
framework for its Making Home Affordable (MHA) program over 2 years
ago, the number of homeowners facing potential foreclosure has
remained at historically high levels. The Emergency Economic
Stabilization Act of 2008, which authorized Treasury to establish the
$700 billion Troubled Asset Relief Program (TARP), was intended to,
among other things, preserve homeownership and protect home values.
[Footnote 1] In February 2009, Treasury announced that up to $50
billion in TARP funds was allocated to help struggling homeowners
avoid potential foreclosure. The key component under MHA, the Home
Affordable Modification Program (HAMP), offered modifications on first-
lien mortgages to reduce borrowers' monthly mortgage payments to
affordable levels, avoid foreclosure, and keep their homes. Since
HAMP's inception, concerns have been raised that the program was not
reaching the expected number of homeowners. In two prior reports, we
looked at the implementation of the HAMP first-lien modification
program and noted that Treasury faced challenges in implementing the
program and made several recommendations intended to address these
challenges.[Footnote 2] In addition, the Special Inspector General for
TARP (SIGTARP) and the Congressional Oversight Panel have issued
several reports containing various recommendations to Treasury
intended to improve the transparency, accountability, and
effectiveness of MHA.[Footnote 3]
Questions continue to be raised about the extent to which the first-
lien program has effectively reached struggling homeowners and reduced
avoidable foreclosures. For example, more homeowners have been denied
or canceled from HAMP first-lien trial loan modifications than have
received permanent modifications to date, raising questions about
which homeowners HAMP has been able to help and how best to meet the
needs of homeowners struggling to avoid foreclosure. Treasury has
begun implementing several other TARP-funded programs for struggling
homeowners under the MHA program, including the Second-Lien
Modification Program (2MP), the Principal Reduction Alternatives (PRA)
program for borrowers who owe more on their mortgages than the value
of their homes, and the Home Affordable Foreclosure Alternatives
(HAFA) program for those who are not successful in HAMP modifications.
[Footnote 4] All are funded by the $50 billion originally allocated
for MHA, which has since been reduced to $45.6 billion for all TARP-
funded housing programs, and further reduced to $29.9 billion for MHA
programs (with the remainder of the balance being allocated to the HFA
Hardest-Hit Fund and the FHA Short Refinance option). Because of
concerns about the effectiveness of these newer TARP-funded programs,
this report examines the extent to which these programs have been
successful at reaching struggling homeowners. To understand the extent
to which Treasury has been able to assess who has been reached by HAMP
and what additional actions may be needed to help struggling
homeowners, we also examined the characteristics of homeowners who
have been assisted by the HAMP first-lien modification program and the
outcomes of borrowers who did not complete HAMP trial or permanent
modifications. We also have ongoing work looking at the broader
federal response to the foreclosure crisis, which encompasses both
TARP and non-TARP funded efforts intended to mitigate the impact of
foreclosures on homeowners.
More specifically, this report examines (1) the status of Treasury's
second-lien modification, principal reduction, and foreclosure
alternatives programs; (2) the characteristics of homeowners who HAMP
has been able to help under the first-lien modification program; and
(3) the outcomes for borrowers who were denied or fell out of HAMP
trial or permanent first-lien modifications.
To address these questions, we obtained information from and spoke
with six large MHA servicers who collectively represented about 74
percent of the TARP funds allocated to servicers participating in the
program. In addition, we reviewed MHA program documentation that
Treasury issued, including supplemental directives for the second-lien
modification, principal reduction, and foreclosure alternatives
programs. In addition, we spoke with members of a trade association
who represented both residential mortgage loan investors and
servicers, and one who represents private mortgage loan insurers. We
also analyzed loan level data from Treasury's HAMP database, which
included data reported by servicers on borrowers evaluated for HAMP
participation through September 30, 2010, to analyze the
characteristics of borrowers who received HAMP, were canceled from
HAMP trial modifications, or redefaulted from permanent HAMP
modifications. To understand the outcomes of borrowers who were denied
or canceled from HAMP, we requested and obtained data from each of the
six servicers noted above. Finally, we conducted a Web-based survey of
housing counselors through NeighborWorks, which funds a national
network of housing counselors to obtain their perspectives of the HAMP
program.[Footnote 5] We coordinated our work with other oversight
entities that TARP created--the Congressional Oversight Panel, the
Office of the Special Inspector General for TARP, and the Financial
Oversight Stability Board.
We conducted this performance audit from July 2010 through March 2011
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on the audit objectives. For additional
information on our scope and methodology, see appendix I.
Background:
Although default rates (loans 90 days or more past due) fell from an
all-time high of 5.09 percent at the end of the fourth quarter of 2009
to 3.94 percent at the end of the fourth quarter of 2010 (a nearly 23
percent drop over the course of a year), the percentage of loans in
foreclosure rose to equal the highest level in recent history at 4.63
percent (figure 1).[Footnote 6] The increase in foreclosure inventory
during the latter part of 2010 may be due to issues surrounding
foreclosure processing and procedures that resulted in various
foreclosure moratorium initiatives. In addition, the percentage of
loans that newly entered the foreclosure process in the fourth quarter
of 2010 remained high at 1.27 percent, compared to 0.42 percent in the
first quarter of 2005.
Figure 1: National Default and Foreclosure Trends from Calendar Years
1979-2010:
[Refer to PDF for image: multiple line graph]
Date: Q1 1979;
Default: 0.47%;
Foreclosure Starts: 0.17%;
Foreclosure Inventory: 0.31%.
Date: Q2 1979;
Default: 0.43%;
Foreclosure Starts: 0.13%;
Foreclosure Inventory: 0.3%.
Date: Q3 1979;
Default: 0.49%;
Foreclosure Starts: 0.12%;
Foreclosure Inventory: 0.27%.
Date: Q4 1979;
Default: 0.54%;
Foreclosure Starts: 0.15%;
Foreclosure Inventory: 0.29%.
Date: Q1 1980;
Default: 0.54%;
Foreclosure Starts: 0.14%;
Foreclosure Inventory: 0.32%.
Date: Q2 1980;
Default: 0.5%;
Foreclosure Starts: 0.13%;
Foreclosure Inventory: 0.32%.
Date: Q3 1980;
Default: 0.6%;
Foreclosure Starts: 0.15%;
Foreclosure Inventory: 0.33%.
Date: Q4 1980;
Default: 0.66%;
Foreclosure Starts: 0.16%;
Foreclosure Inventory: 0.38%.
Date: Q1 1981;
Default: 0.66%;
Foreclosure Starts: 0.18%;
Foreclosure Inventory: 0.44%.
Date: Q2 1981;
Default: 0.58%;
Foreclosure Starts: 0.16%;
Foreclosure Inventory: 0.41%.
Date: Q3 1981;
Default: 0.65%;
Foreclosure Starts: 0.14%;
Foreclosure Inventory: 0.41%.
Date: Q4 1981;
Default: 0.68%;
Foreclosure Starts: 0.17%;
Foreclosure Inventory: 0.44%.
Date: Q1 1982;
Default: 0.72%;
Foreclosure Starts: 0.22%;
Foreclosure Inventory: 0.53%.
Date: Q2 1982;
Default: 0.68%;
Foreclosure Starts: 0.19%;
Foreclosure Inventory: 0.55%.
Date: Q3 1982;
Default: 0.79%;
Foreclosure Starts: 0.2%;
Foreclosure Inventory: 0.62%.
Date: Q4 1982;
Default: 0.89%;
Foreclosure Starts: 0.23%;
Foreclosure Inventory: 0.67%.
Date: Q1 1983;
Default: 0.86%;
Foreclosure Starts: 0.22%;
Foreclosure Inventory: 0.71%.
Date: Q2 1983;
Default: 0.75%;
Foreclosure Starts: 0.22%;
Foreclosure Inventory: 0.66%.
Date: Q3 1983;
Default: 0.84%;
Foreclosure Starts: 0.2%;
Foreclosure Inventory: 0.66%.
Date: Q4 1983;
Default: 0.91%;
Foreclosure Starts: 0.22%;
Foreclosure Inventory: 0.67%.
Date: Q1 1984;
Default: 0.89%;
Foreclosure Starts: 0.2%;
Foreclosure Inventory: 0.68%.
Date: Q2 1984;
Default: 0.79%;
Foreclosure Starts: 0.21%;
Foreclosure Inventory: 0.63%.
Date: Q3 1984;
Default: 0.9%;
Foreclosure Starts: 0.23%;
Foreclosure Inventory: 0.68%.
Date: Q4 1984;
Default: 0.98%;
Foreclosure Starts: 0.2%;
Foreclosure Inventory: 0.73%.
Date: Q1 1985;
Default: 0.98%;
Foreclosure Starts: 0.25%;
Foreclosure Inventory: 0.79%.
Date: Q2 1985;
Default: 0.82%;
Foreclosure Starts: 0.22%;
Foreclosure Inventory: 0.76%.
Date: Q3 1985;
Default: 0.92%;
Foreclosure Starts: 0.22%;
Foreclosure Inventory: 0.75%.
Date: Q4 1985;
Default: 1.03%;
Foreclosure Starts: 0.22%;
Foreclosure Inventory: 0.81%.
Date: Q1 1986;
Default: 1.01%;
Foreclosure Starts: 0.25%;
Foreclosure Inventory: 0.87%.
Date: Q2 1986;
Default: 0.96%;
Foreclosure Starts: 0.24%;
Foreclosure Inventory: 0.92%.
Date: Q3 1986;
Default: 0.99%;
Foreclosure Starts: 0.26%;
Foreclosure Inventory: 0.92%.
Date: Q4 1986;
Default: 1.06%;
Foreclosure Starts: 0.26%;
Foreclosure Inventory: 0.98%.
Date: Q1 1987;
Default: 1.04%;
Foreclosure Starts: 0.28%;
Foreclosure Inventory: 1.09%.
Date: Q2 1987;
Default: 0.88%;
Foreclosure Starts: 0.24%;
Foreclosure Inventory: 1.12%.
Date: Q3 1987;
Default: 0.83%;
Foreclosure Starts: 0.25%;
Foreclosure Inventory: 1.03%.
Date: Q4 1987;
Default: 0.96%;
Foreclosure Starts: 0.27%;
Foreclosure Inventory: 1.06%.
Date: Q1 1988;
Default: 0.89%;
Foreclosure Starts: 0.29%;
Foreclosure Inventory: 1.07%.
Date: Q2 1988;
Default: 0.82%;
Foreclosure Starts: 0.26%;
Foreclosure Inventory: 1.03%.
Date: Q3 1988;
Default: 0.81%;
Foreclosure Starts: 0.26%;
Foreclosure Inventory: 1%.
Date: Q4 1988;
Default: 0.9%;
Foreclosure Starts: 0.27%;
Foreclosure Inventory: 0.95%.
Date: Q1 1989;
Default: 0.83%;
Foreclosure Starts: 0.31%;
Foreclosure Inventory: 0.95%.
Date: Q2 1989;
Default: 0.71%;
Foreclosure Starts: 0.35%;
Foreclosure Inventory: 1.06%.
Date: Q3 1989;
Default: 0.74%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 0.99%.
Date: Q4 1989;
Default: 0.81%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 0.98%.
Date: Q1 1990;
Default: 0.7%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 0.97%.
Date: Q2 1990;
Default: 0.65%;
Foreclosure Starts: 0.3%;
Foreclosure Inventory: 0.93%.
Date: Q3 1990;
Default: 0.71%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 0.93%.
Date: Q4 1990;
Default: 0.78%;
Foreclosure Starts: 0.29%;
Foreclosure Inventory: 0.94%.
Date: Q1 1991;
Default: 0.78%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 0.97%.
Date: Q2 1991;
Default: 0.73%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 0.96%.
Date: Q3 1991;
Default: 0.82%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 0.98%.
Date: Q4 1991;
Default: 0.86%;
Foreclosure Starts: 0.35%;
Foreclosure Inventory: 1.04%.
Date: Q1 1992;
Default: 0.8%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 1.04%.
Date: Q2 1992;
Default: 0.78%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 1.04%.
Date: Q3 1992;
Default: 0.84%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 1.04%.
Date: Q4 1992;
Default: 0.8%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 1.02%.
Date: Q1 1993;
Default: 0.77%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 1%.
Date: Q2 1993;
Default: 0.74%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 1.02%.
Date: Q3 1993;
Default: 0.79%;
Foreclosure Starts: 0.31%;
Foreclosure Inventory: 1.01%.
Date: Q4 1993;
Default: 0.79%;
Foreclosure Starts: 0.31%;
Foreclosure Inventory: 0.96%.
Date: Q1 1994;
Default: 0.75%;
Foreclosure Starts: 0.31%;
Foreclosure Inventory: 0.94%.
Date: Q2 1994;
Default: 0.77%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 1.03%.
Date: Q3 1994;
Default: 0.76%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 0.92%.
Date: Q4 1994;
Default: 0.76%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 0.86%.
Date: Q1 1995;
Default: 0.7%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 0.86%.
Date: Q2 1995;
Default: 0.73%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 0.88%.
Date: Q3 1995;
Default: 0.8%;
Foreclosure Starts: 0.32%;
Foreclosure Inventory: 0.91%.
Date: Q4 1995;
Default: 0.73%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 0.87%.
Date: Q1 1996;
Default: 0.68%;
Foreclosure Starts: 0.37%;
Foreclosure Inventory: 0.95%.
Date: Q2 1996;
Default: 0.61%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 0.96%.
Date: Q3 1996;
Default: 0.61%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 1%.
Date: Q4 1996;
Default: 0.63%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 1.03%.
Date: Q1 1997;
Default: 0.55%;
Foreclosure Starts: 0.36%;
Foreclosure Inventory: 1.08%.
Date: Q2 1997;
Default: 0.56%;
Foreclosure Starts: 0.35%;
Foreclosure Inventory: 1.08%.
Date: Q3 1997;
Default: 0.58%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 1.09%.
Date: Q4 1997;
Default: 0.65%;
Foreclosure Starts: 0.37%;
Foreclosure Inventory: 1.11%.
Date: Q1 1998;
Default: 0.6%;
Foreclosure Starts: 0.37%;
Foreclosure Inventory: 1.17%.
Date: Q2 1998;
Default: 0.6%;
Foreclosure Starts: 0.37%;
Foreclosure Inventory: 1.12%.
Date: Q3 1998;
Default: 0.63%;
Foreclosure Starts: 0.36%;
Foreclosure Inventory: 1.17%.
Date: Q4 1998;
Default: 0.66%;
Foreclosure Starts: 0.39%;
Foreclosure Inventory: 1.17%.
Date: Q1 1999;
Default: 0.6%;
Foreclosure Starts: 0.36%;
Foreclosure Inventory: 1.22%.
Date: Q2 1999;
Default: 0.56%;
Foreclosure Starts: 0.34%;
Foreclosure Inventory: 1.18%.
Date: Q3 1999;
Default: 0.6%;
Foreclosure Starts: 0.33%;
Foreclosure Inventory: 1.11%.
Date: Q4 1999;
Default: 0.62%;
Foreclosure Starts: 0.36%;
Foreclosure Inventory: 1.17%.
Date: Q1 2000;
Default: 0.55%;
Foreclosure Starts: 0.36%;
Foreclosure Inventory: 1.17%.
Date: Q2 2000;
Default: 0.54%;
Foreclosure Starts: 0.3%;
Foreclosure Inventory: 1.03%.
Date: Q3 2000;
Default: 0.59%;
Foreclosure Starts: 0.42%;
Foreclosure Inventory: 1.09%.
Date: Q4 2000;
Default: 0.7%;
Foreclosure Starts: 0.43%;
Foreclosure Inventory: 1.16%.
Date: Q1 2001;
Default: 0.66%;
Foreclosure Starts: 0.4%;
Foreclosure Inventory: 1.24%.
Date: Q2 2001;
Default: 0.74%;
Foreclosure Starts: 0.47%;
Foreclosure Inventory: 1.29%.
Date: Q3 2001;
Default: 0.82%;
Foreclosure Starts: 0.46%;
Foreclosure Inventory: 1.34%.
Date: Q4 2001;
Default: 0.89%;
Foreclosure Starts: 0.47%;
Foreclosure Inventory: 1.46%.
Date: Q1 2002;
Default: 0.8%;
Foreclosure Starts: 0.45%;
Foreclosure Inventory: 1.51%.
Date: Q2 2002;
Default: 0.85%;
Foreclosure Starts: 0.49%;
Foreclosure Inventory: 1.46%.
Date: Q3 2002;
Default: 0.94%;
Foreclosure Starts: 0.44%;
Foreclosure Inventory: 1.49%.
Date: Q4 2002;
Default: 0.94%;
Foreclosure Starts: 0.42%;
Foreclosure Inventory: 1.46%.
Date: Q1 2003;
Default: 0.83%;
Foreclosure Starts: 0.41%;
Foreclosure Inventory: 1.43%.
Date: Q2 2003;
Default: 0.92%;
Foreclosure Starts: 0.36%;
Foreclosure Inventory: 1.35%.
Date: Q3 2003;
Default: 0.9%;
Foreclosure Starts: 0.43%;
Foreclosure Inventory: 1.24%.
Date: Q4 2003;
Default: 0.89%;
Foreclosure Starts: 0.46%;
Foreclosure Inventory: 1.29%.
Date: Q1 2004;
Default: 0.85%;
Foreclosure Starts: 0.46%;
Foreclosure Inventory: 1.29%.
Date: Q2 2004;
Default: 0.85%;
Foreclosure Starts: 0.39%;
Foreclosure Inventory: 1.18%.
Date: Q3 2004;
Default: 0.86%;
Foreclosure Starts: 0.42%;
Foreclosure Inventory: 1.16%.
Date: Q4 2004;
Default: 0.92%;
Foreclosure Starts: 0.46%;
Foreclosure Inventory: 1.15%.
Date: Q1 2005;
Default: 0.81%;
Foreclosure Starts: 0.42%;
Foreclosure Inventory: 1.08%.
Date: Q2 2005;
Default: 0.83%;
Foreclosure Starts: 0.38%;
Foreclosure Inventory: 1%.
Date: Q3 2005;
Default: 0.85%;
Foreclosure Starts: 0.41%;
Foreclosure Inventory: 0.97%.
Date: Q4 2005;
Default: 1.09%;
Foreclosure Starts: 0.42%;
Foreclosure Inventory: 0.99%.
Date: Q1 2006;
Default: 0.95%;
Foreclosure Starts: 0.42%;
Foreclosure Inventory: 0.98%.
Date: Q2 2006;
Default: 0.9%;
Foreclosure Starts: 0.4%;
Foreclosure Inventory: 0.99%.
Date: Q3 2006;
Default: 0.95%;
Foreclosure Starts: 0.47%;
Foreclosure Inventory: 1.05%.
Date: Q4 2006;
Default: 1.02%;
Foreclosure Starts: 0.57%;
Foreclosure Inventory: 1.19%.
Date: Q1 2007;
Default: 0.95%;
Foreclosure Starts: 0.59%;
Foreclosure Inventory: 1.28%.
Date: Q2 2007;
Default: 1.07%;
Foreclosure Starts: 0.59%;
Foreclosure Inventory: 1.4%.
Date: Q3 2007;
Default: 1.26%;
Foreclosure Starts: 0.78%;
Foreclosure Inventory: 1.69%.
Date: Q4 2007;
Default: 1.58%;
Foreclosure Starts: 0.88%;
Foreclosure Inventory: 2.04%.
Date: Q1 2008;
Default: 1.56%;
Foreclosure Starts: 1.01%;
Foreclosure Inventory: 2.47%.
Date: Q2 2008;
Default: 1.75%;
Foreclosure Starts: 1.08%;
Foreclosure Inventory: 2.75%.
Date: Q3 2008;
Default: 2.2%;
Foreclosure Starts: 1.07%;
Foreclosure Inventory: 2.97%.
Date: Q4 2008;
Default: 3%;
Foreclosure Starts: 1.08%;
Foreclosure Inventory: 3.3%.
HAMP Program began:
Date: Q1 2009;
Default: 3.39%;
Foreclosure Starts: 1.37%;
Foreclosure Inventory: 3.85%.
Date: Q2 2009;
Default: 3.67%;
Foreclosure Starts: 1.36%;
Foreclosure Inventory: 4.3%.
Date: Q3 2009;
Default: 4.38%;
Foreclosure Starts: 1.42%;
Foreclosure Inventory: 4.47%.
Date: Q4 2009;
Default: 5.09%;
Foreclosure Starts: 1.2%;
Foreclosure Inventory: 4.58%.
Date: Q1 2010;
Default: 4.91%;
Foreclosure Starts: 1.23%;
Foreclosure Inventory: 4.63%.
Date: Q2 2010;
Default: 4.54%;
Foreclosure Starts: 1.11%;
Foreclosure Inventory: 4.57%.
Date: Q3 2010;
Default: 4.31%;
Foreclosure Starts: 1.34%;
Foreclosure Inventory: 4.39%.
Date: Q4 2010;
Default: 3.94%;
Foreclosure Starts: 1.27%;
Foreclosure Inventory: 4.63%.
Source: GAO analysis of MBA data.
[End of figure]
As we reported in December 2008, Treasury has established an Office of
Homeownership Preservation within the Office of Financial Stability
(OFS), which administers TARP, to address the issues of preserving
homeownership and protecting home values.[Footnote 7] On February 18,
2009, Treasury announced the broad outline of the MHA program. The
largest component of MHA was the HAMP first-lien modification program,
which was intended to help eligible homeowners stay in their homes and
avoid potential foreclosure. Treasury intended that up to $75 billion
would be committed to MHA ($50 billion under TARP and $25 billion from
Fannie Mae and Freddie Mac) to prevent avoidable foreclosures for up
to 3 to 4 million borrowers who were struggling to pay their
mortgages. According to Treasury officials, up to $50 billion in TARP
funds were to be used to encourage the modification of mortgages that
financial institutions owned and held in their portfolios (whole
loans) and mortgages held in private-label securitization trusts.
[Footnote 8] Fannie Mae and Freddie Mac together were expected to
provide up to an additional $25 billion from their own balance sheets
to encourage servicers and borrowers to modify or refinance loans that
those two Government Sponsored Enterprises (GSE) guaranteed.[Footnote
9] Only financial institutions that voluntarily signed a Commitment to
Purchase Financial Instrument and Servicer Participation Agreement
(SPA) with respect to their non-GSE loans are eligible to receive TARP
financial incentives under the MHA program.
HAMP first-lien modifications are available to qualified borrowers who
occupied their properties as their primary residence, who had taken
out their loans on or before January 1, 2009, and whose first-lien
mortgage payment was more than 31 percent of their gross monthly
income (calculated using the front-end debt-to-income ratio (DTI)).
[Footnote 10] Only single-family properties (one-four units) with
mortgages no greater than $729,750 for a one-unit property were
eligible.[Footnote 11]
The HAMP first-lien modification program has four main features:
1. Cost sharing. Mortgage holders/investors are required to take the
first loss in reducing the borrower's monthly payments to no more than
38 percent of the borrower's income. For non-GSE loans, Treasury then
uses TARP funds to match further reductions on a dollar-for-dollar
basis, down to the target of 31 percent of the borrower's gross
monthly income. The modified monthly payment is fixed for 5 years or
until the loan is paid off, whichever is earlier, as long as the
borrower remains in good standing with the program. After 5 years,
investors no longer receive payments for cost sharing, and the
borrower's interest rate may increase by 1 percent a year to a cap
that equals the Freddie Mac rate for 30-year fixed rate loans as of
the date that the modification agreement was prepared. The borrower's
payment would increase to accommodate the increase in the interest
rate, but the interest rate and monthly payments would then be fixed
for the remainder of the loan.
2. Standardized net present value (NPV) model. The NPV model compares
expected cash flows from a modified loan to the same loan with no
modification, using certain assumptions. If the expected investor cash
flow with a modification is greater than the expected cash flow
without a modification, the loan servicer is required to modify the
loan. According to Treasury, the NPV model increases mortgage
investors' confidence that modifications under HAMP are in their best
financial interests and helps ensure that borrowers are treated
consistently under the program by providing an externally derived
objective standard for all loan servicers to follow.
3. Standardized waterfall. Servicers must follow a sequential
modification process to reduce payments to as close to 31 percent of
gross monthly income as possible. Servicers must first capitalize
accrued interest and certain expenses paid to third parties and add
this amount to the loan balance (principal) amount. Next, the interest
rate must be reduced in increments of one-eighth of 1 percent until
the 31 percent DTI target is reached, but servicers may not reduce
interest rates below 2 percent. If the interest rate reduction does
not result in a DTI ratio of 31 percent, servicers must then extend
the maturity and/or amortization period of the loan in 1-month
increments up to 40 years. Finally, if the target DTI ratio is still
not reached, the servicer must forbear, or defer, principal until the
payment is reduced to the 31 percent target. Servicers may also
forgive mortgage principal at any step of the process to achieve the
target monthly payment ratio of 31 percent, provided that the investor
allows principal reduction.[Footnote 12]
4. Incentive payment structure. Treasury uses TARP funds to provide
both one-time and ongoing incentives ("pay-for-success") for up to 5
years to non-GSE loan servicers, mortgage investors, and borrowers.
These incentives are designed to increase the likelihood that the
program will produce successful modifications over the long term and
help cover the servicers' and investors' costs for making the
modifications.
Borrowers must also demonstrate their ability to pay the modified
amount by successfully completing a trial period of at least 90 days
before a loan is permanently modified and any government payments are
made under HAMP. Treasury has entered into agreements with Fannie Mae
and Freddie Mac to act as its financial agents for MHA. With respect
to Freddie Mac, these responsibilities are carried out by a separate
division of that entity. Fannie Mae serves as the MHA program
administrator and is responsible for developing and administering
program operations including registering servicers and executing
participation agreements with and collecting data from them, as well
as providing ongoing servicer training and support. Within Freddie
Mac, the MHA-Compliance (MHA-C) team is the MHA compliance agent and
is responsible for assessing servicers' compliance with non-GSE
program guidelines, including conducting on-site and remote servicer
loan file reviews and audits.
Initially, only servicers who signed a SPA prior to December 31, 2009,
were eligible to participate in MHA. Subsequently, the Secretary of
the Treasury exercised the authority granted under the Emergency
Economic Stabilization Act of 2008 to extend TARP's obligation
authority to October 3, 2010, which allowed servicers to continue to
sign SPAs to participate in MHA until that time. As of December 31,
2010, there were a total of 143 active servicers.[Footnote 13] Through
January 2011, $29.9 billion in TARP funds had been committed to these
servicers for modification of non-GSE loans.[Footnote 14] Based on the
MHA Servicer Performance Report through January 2011, nearly 1.8
million HAMP trial modifications had been offered to borrowers of GSE
and non-GSE loans as of the end of January 2011, and nearly 1.5
million of these had begun HAMP trial modifications.[Footnote 15] Of
the trial modifications begun, approximately 145,000 were in active
trial modifications, roughly 539,000 were in active permanent
modifications, roughly 740,000 trial modifications had been canceled,
and roughly 68,000 permanent modifications had been canceled.
Recently, the number of new trial and permanent modifications started
each month has declined (figure 2). As of December 31, 2010, $1
billion in TARP funds had been disbursed for TARP-funded housing
programs, of which $840 million was disbursed for HAMP-related
activity.
Figure 2: GSE and Non-GSE HAMP Trial and Permanent Modifications Made
and Canceled Each Month, through January 2011:
[Refer to PDF for image: multiple line graph]
Year: 2009:
Date: May and prior;
Trials started: 55,478.
Date: June;
Trials started: 109,399.
Date: July;
Trials started: 119,815.
Treasury announces goal of 500,000 trials by November 1,2009.
Date: August;
Trials started: 144,35.
Date: September;
Trials started: 134,456;
Permanents started: 4,742.
Date: October;
Trials started: 159,129;
Permanents started: 10,907.
Start of Treasury's Conversion Campaign.
Date: November;
Trials started: 115,061;
Permanents started: 15,775.
Date: December;
Trials started: 118,332;
Permanents started: 35,514.
Year: 2010:
Date: January;
Trials started: 94,400;
Permanents started: 50,364;
Trials canceled: 60,476;
Permanents canceled: 1,005.
Date: February;
Trials started: 87,668;
Permanents started: 52,905;
Trials canceled: 28,187;
Permanents canceled: 494.
Date: March;
Trials started: 70,489;
Permanents started: 60,594;
Trials canceled: 66,51;
Permanents canceled: 1,380.
Date: April;
Trials started: 48,112;
Permanents started: 68,291;
Trials canceled: 122,467;
Permanents canceled: 865.
Date: May;
Trials started: 26,086;
Permanents started: 47,724;
Trials canceled: 152,056;
Permanents canceled: 2,613.
Date: June;
Trials started: 21,759;
Permanents started: 51,205;
Trials canceled: 91,118;
Permanents canceled: 2,466.
Date: July;
Trials started: 24,318;
Permanents started: 36,695;
Trials canceled: 96,025;
Permanents canceled: 4,089.
Date: August;
Trials started: 22,835;
Permanents started: 33,342;
Trials canceled: 46,699;
Permanents canceled: 6,209.
Date: September;
Trials started: 30,586;
Permanents started: 27,84;
Trials canceled: 36,386;
Permanents canceled: 10,069.
Date: October;
Trials started: 29,569;
Permanents started: 23,75;
Trials canceled: 19,563;
Permanents canceled: 7,116.
Date: November;
Trials started: 29,346;
Permanents started: 29,972;
Trials canceled: 9,622;
Permanents canceled: 8,666.
Date: December;
Trials started: 31,160;
Permanents started: 30,030;
Trials canceled: 5,400;
Permanents canceled: 13,048.
Year: 2011:
Date: January;
Trials started: 20,759;
Permanents started: 27,957;
Trials canceled: 5,731;
Permanents canceled: 10,094.
Source: GAO analysis of Treasury data.
[End of figure]
Implementation of Treasury's Newer Housing Programs Has Been Slow and
Capacity of Servicers to Carry Out These Programs Remains Unclear,
Raising Uncertainty About the Potential Impact of These Programs:
Treasury has recently implemented programs to reduce or eliminate
payments on second-lien mortgages, provide incentives for the use of
short sales or deeds-in-lieu as alternatives to foreclosure, and
provide incentives for the forgiveness of principal for borrowers
whose homes are worth significantly less than their mortgage balances.
However, as of December 2010, reported activity under these three
programs had been limited.[Footnote 16]
* 2MP was announced in March 2009, and had disbursed $2.9 million out
of nearly $133 million allocated to the program by the end of December
2010. In part, the limited activity appears to be the result of
problems that servicers have experienced using the database that
Treasury required to identify second-lien mortgages eligible for
modification. Treasury has taken some steps to address these
challenges, but could take further action to ensure that borrowers are
aware of their potential eligibility for the program.
* HAFA was announced in March 2009 and had disbursed $9.5 million out
of $4.1 billion allocated to the program by the end of December 2010.
Restrictive program requirements--for example, that borrowers be
evaluated for a HAMP first-lien modification before being evaluated
for HAFA, appear to have limited program activity to date. Treasury
has taken steps to revise program guidelines, but it remains to be
seen the extent to which these actions will result in increased
program activity.
* PRA was announced in March 2010 and Treasury had not reported
activity as of December 2010 for this $2 billion program. Mortgage
investors and others have cited concerns that the voluntary nature of
the program and transparency issues, including concerns about the
extent of reporting on PRA activity, may limit the extent to which
servicers implement PRA. Treasury has not yet implemented our June
2010 recommendation that it report activity under PRA, including the
extent to which servicers determined that principal reduction was
beneficial to investors but did not offer it, to ensure transparency
in the implementation of this program feature across servicers.
Further, Treasury has not incorporated key lessons learned from
implementation challenges it faced with the first-lien program.
[Footnote 17] Similar to the first-lien modification program, Treasury
has not established effective performance measures for these three
programs, including goals for the number of borrowers it expects to
help. As a result, determining the progress and success of these
programs in preserving homeownership and protecting home values will
be difficult.
Challenges in Matching First-and Second-Lien Mortgage Data and
Potential Lack of Awareness of the Program Have Slowed Implementation
of the Second-Lien Modification Program:
Under 2MP, Treasury provides incentives for second-lien holders to
modify or extinguish a second-lien mortgage when a HAMP modification
has been initiated on the first-lien mortgage for the same property.
Treasury requires servicers who agree to participate in the 2MP
program to offer to modify the borrower's second lien according to a
defined protocol when the borrower's first lien is modified under
HAMP. That protocol provides for a lump-sum payment from Treasury in
exchange for full extinguishment of the second lien or a reduced lump-
sum payment for a partial extinguishment and modification of the
borrower's remaining second lien. The modification steps for 2MP are
similar to those for HAMP first-lien modifications, with the interest
rate generally reduced to 1 percent and the loan term generally
extended to match the term of the HAMP-modified first lien. In
addition, if the HAMP modification on the first lien included
principal forgiveness, the 2MP modification must forgive principal in
the same proportion. Servicers were required to sign specific
agreements to participate in 2MP. As of November 2010, 17 servicers
were participating in the program, covering nearly two-thirds of the
second-lien mortgage market.
According to Treasury, 2MP is needed to create a comprehensive
solution for borrowers struggling to make their mortgage payments, but
Treasury officials we interviewed told us that the pace of 2MP
modifications had been slow. Of the six servicers we contacted, five
had signed 2MP participation agreements and represented the majority
of potential second liens covered by servicers participating in the
program.[Footnote 18] Only one of these five servicers had begun 2MP
modifications as of the date we collected information from these
servicers--over 18 months after the program was first announced by
Treasury. This servicer reported that it had started 1,334 second-lien
modifications. As of January 2011, Treasury had not yet begun
reporting activity under 2MP. According to servicers and Treasury
officials, the primary reason for the slow implementation of 2MP has
been challenges in obtaining accurate matches of first and second
liens from the data vendor required by Treasury. Treasury's 2MP
guidelines specify that in order for a second lien to be modified
under 2MP, the corresponding first lien must first have been modified
under the HAMP first-lien modification program. Fannie Mae, as the MHA
program administrator, has contracted with a mortgage loan data
vendor--Lender Processing Services (LPS)--to develop a database that
would inform second-lien servicers when the corresponding first lien
had been modified under HAMP. LPS was also the data vendor used by
Fannie Mae to process the loan level data reported by servicers for
the HAMP first-lien program. Under 2MP, participating servicers agree
to provide LPS with information regarding all eligible second liens
they serviced. LPS, in turn, provides participating 2MP servicers with
data on second liens that have had the borrowers' corresponding first-
lien mortgages modified under the HAMP program. However, the five
participating 2MP servicers we spoke with all expressed concerns about
the completeness or accuracy of LPS' data. In particular, they noted
that differences in the spelling of addresses--for example, in
abbreviations or spacing--could prevent LPS from finding matches
between first and second liens. Additionally, another servicer
reported that first-lien data could be incorrectly reported in LPS--
for example, in one case, a borrower was incorrectly reported as not
in good standing and, subsequently, was reported as canceled from
HAMP. This mistake prevented the borrower's first and second liens
from being matched, even though the borrower was in good standing and
eligible for 2MP. Treasury has also acknowledged that an inability to
identify first-and second-lien matches poses a potential risk to the
successful implementation of 2MP.
Initial 2MP guidelines stated that servicers could not offer a second-
lien modification without a confirmation of a match from LPS, even if
they serviced both first and second liens on the same property and,
thus, would know if the first lien had been modified under HAMP. In
November 2010 Treasury provided updated program guidance that revised
the match requirement if servicers serviced both the first and second
lien on a property. According to these updated guidelines, servicers
can offer a 2MP modification when they identify a first-and second-
lien match within their own portfolio or if they have evidence of the
existence of a corresponding first lien, even if the LPS database has
not identified it. While this change may enable more 2MP
modifications, Treasury did not release this guidance until after
participating servicers had already begun implementing 2MP, more than
a year after the program's guidelines were first announced in August
2009.
If they do not service both liens, second-lien servicers must rely on
LPS for matching data or obtain sufficient documentation of the HAMP
first-lien modification to identify the match. If the matching data
provided by LPS is not accurate, it is possible that eligible
borrowers will not receive second-lien modifications. Treasury noted
that there are no standard data definitions in the servicing industry,
making it difficult to match these data across servicers. To address
some of the concerns about inaccurate and incomplete matches, Treasury
officials told us they worked with LPS to change the matching
protocols. Now LPS provides 2MP servicers with a list of confirmed
address matches and a separate list of probable matches based only on
loan number and zip code. Treasury told us that it would issue
additional guidance for handling probable matches, but added that
servicers would be responsible for confirming probable matches with
LPS.
Treasury does not require first-lien servicers to check credit reports
to determine if borrowers whose first liens they modified also had
second liens, and if so, the identity of the second-lien servicer. One
servicer noted that credit reports did not always have complete and
reliable information. In addition, Treasury does not require first-
lien servicers to inform borrowers about their potential eligibility
for the second-lien program. Therefore, borrowers may be unaware that
their second lien could be modified and unlikely to inquire with their
second-lien servicers about a second-lien modification. Any gaps in
the awareness of 2MP could contribute to delays in modifying eligible
second-lien mortgages or missed opportunities altogether.
Additionally, any delays or omissions increase the likelihood that the
borrower with an eligible second lien may not be able to maintain the
required monthly reduced payments on the modified first-and unmodified
second-lien mortgages and ultimately redefault on their HAMP first-
lien modification.
Treasury Has Taken Some Recent Steps to Address Requirements That May
Have Been Affecting Participation in the Foreclosure Alternatives
Program:
Under HAFA, Treasury provides incentives for short sales and deeds-in-
lieu of foreclosure as alternatives to foreclosure for borrowers who
are unable or unwilling to complete the HAMP first-lien modification
process.[Footnote 19] Borrowers are eligible for relocation assistance
of $3,000 and servicers receive a $1,500 incentive for completing a
short sale or deed-in-lieu of foreclosure. In addition, investors are
paid up to $2,000 for allowing short-sale proceeds to be distributed
to subordinate lien holders. Servicers who participate in the HAMP
first-lien modification program are required to evaluate certain
borrowers for HAFA--those whom they cannot approve for HAMP because,
for example, they do not pass the NPV test or have investors that
prohibit modifications; those who do not accept a HAMP trial
modification; and those who default on a HAMP modification.
All six of the large MHA servicers we spoke with identified extensive
program requirements as reasons for the slow implementation of the
program, including the requirement in the initial guidance that
borrowers first be evaluated for a HAMP first-lien modification.
Restrictive short-sale requirements, and a requirement that mortgage
insurers waive certain rights may have also contributed to the limited
activity under HAFA. As a result, they said they did not expect HAFA
to increase their overall number of short sales and deeds-in-lieu.
Some of the program requirements identified by servicers as a reason
for the slow implementation of the program were recently addressed by
Treasury's December 28, 2010, revisions to its HAFA guidelines.
* Borrowers had to first be evaluated for HAMP. According to
Treasury's initial guidelines, borrowers were to be evaluated for a
HAMP first-lien modification before being considered for HAFA, even
borrowers who specifically requested a short sale or deed-in-lieu
rather than a modification. As such, borrowers interested in HAFA had
to submit all income and other documentation required for a HAMP first-
lien modification. According to servicers we interviewed, this
requirement was more stringent than most proprietary short-sale
requirements, and borrowers may have had difficulty providing all of
the documentation required. For example, one servicer told us that it
evaluated borrowers for proprietary short sales on the basis of the
value of the property and the borrower's hardship and that income
documentation was not required. Additionally, a HAMP evaluation may
add extra time to the short-sale process. In cases where a borrower
had already identified a potential buyer before executing a short-sale
agreement with the servicer, the additional time required for a HAMP
first-lien evaluation may have dissuaded the buyer from purchasing the
property.
In response to this concern, Treasury released updated HAFA guidance
on December 28, 2010, to no longer require servicers to document and
verify a borrower's financial information to be eligible for HAFA. The
updated guidance requires servicers to notify borrowers who request a
short sale before they have been evaluated for HAMP about the
availability of HAMP, but no longer requires the servicer to complete
a HAMP evaluation before considering the borrower for HAFA, especially
in circumstances where the borrower already has a purchaser for the
property. As a result, borrowers who specifically request a short sale
or deed-in-lieu can be considered for HAFA at the start of the HAMP
evaluation process, rather than having to wait until the completion of
the HAMP evaluation process.[Footnote 20]
* Restrictive short-sale requirements. According to servicers we spoke
with, some HAFA short-sale requirements, such as occupancy
requirements, may have been too restrictive. Specifically, one
servicer cited as too restrictive the requirement in the initial
guidelines that a property not be vacant for more than 90 days prior
to the date of the short-sale agreement, and that if it is vacant, it
is because the borrower relocated at least 100 miles away to accept
new employment. To address this concern, Treasury issued updated
guidance in December 2010 which extended the allowed vacancy period
from 90 days to 12 months and eliminated the requirement that the
borrower moved to accept employment, but added a requirement that the
borrower had not purchased other residential property within the prior
12 months. Owner-occupancy restrictions may also limit the number of
HAFA short sales and deeds-in-lieu. One servicer noted that many of
the short sales it completed outside of HAFA were for nonowner-
occupied properties, which may include second homes or commercial
properties. However, HAFA offers alternatives to foreclosure only for
eligible loans under HAMP, which is intended for a property serving as
a borrower's principal residence.
* Waiving of rights by mortgage insurers to collect additional sums.
According to Treasury guidelines, "a mortgage loan does not qualify
for HAFA unless the mortgage insurer waives any right to collect
additional sums (cash contribution or a promissory note) from the
borrower."[Footnote 21] Some servicers noted that this requirement had
prevented some HAFA short sales from being completed due to
difficulties in obtaining approval for HAFA short sales from mortgage
insurers. Lenders frequently require mortgage insurance for loans that
exceed 80 percent of the appraised value of the property at the time
of origination. Under a short-sale scenario, the mortgage insurance
company could be responsible for paying the mortgage holder or
investor for all or part of the losses incurred under the short sale
depending upon the coverage agreement and proceeds from the sale.
Mortgage insurance representatives we spoke with indicated that while
they supported HAFA participation, they felt that mortgage insurers
should not have to waive their rights to collect additional sums if
borrowers had some ability to pay them. These representatives told us
that they had not seen many requests for approvals of HAFA foreclosure
alternatives, so they did not believe this requirement was a key
impediment for HAFA. However, they agreed that because servicers did
not know whether mortgage insurers would agree to waive their rights,
the requirement could make it more difficult to solicit borrowers for
HAFA. To minimize the impact of this requirement, one mortgage
insurance representative noted that his company commits to responding
to servicers within 48 hours with a decision about whether the
mortgage insurance company agrees to forego a contribution from the
borrower.
We plan to continue to monitor the progress of the HAFA program,
including the impact of Treasury's December 2010 revisions to its HAFA
guidelines as well as the other program requirements identified by
servicers as contributing to the slow implementation of the program,
as part of our ongoing oversight of the performance of TARP.
Large MHA Servicers Generally Have Agreed to Offer Principal
Reductions, but Mortgage Investors Had Concerns about Program Design
and Transparency:
PRA provides financial incentives to investors who agree to forgive
principal for borrowers whose homes are worth significantly less than
the remaining amounts owed under their first-lien mortgage loans.
Treasury's PRA guidelines require servicers to consider principal
forgiveness for any HAMP-eligible borrowers with MLTV greater than 115
percent, using both the standard waterfall and an
alternative.[Footnote 22] While servicers must consider borrowers for
principal forgiveness, they are not required to offer it, even if the
NPV value to modify the loan is higher when principal is forgiven. If
they choose to offer forgiveness, servicers must reduce the balance
borrowers owe on their mortgages in increments over 3 years, but only
if the borrowers remain current on their payments. Servicers must
establish written policies to Treasury detailing when principal
forgiveness will be offered. According to Treasury, a survey of the 20
largest servicers indicates that 13 servicers are planning to offer
principal reduction to some extent.
Of the six servicers we spoke with, three said that they planned to
offer principal reduction under the program in all cases in which the
NPV was higher with PRA, unless investor restrictions prevented it.
[Footnote 23] As of October 2010, one of these three servicers had
begun HAMP trial modifications with PRA, another had begun
implementation of PRA but had not yet made trial modification offers
with PRA, and the third servicer had not yet completed implementation
of the program. The three remaining servicers we spoke with said they
would limit the conditions under which they would offer principal
forgiveness under the program. One servicer offered PRA only for
adjustable-rate mortgage loans, subprime loans, and 2-year hybrid
loans, and the other had developed a "second look" process for
reviewing loans that had a higher NPV result with principal
forgiveness. This servicer reevaluated these loans using its internal
estimates of default rates and did not forgive principal unless its
own estimates indicated a higher NPV with forgiveness. As a result,
only 15 to 25 percent of those who otherwise would have received
principal forgiveness will receive it after this "second look"
process, according to this servicer. The third servicer said it would
not offer PRA for loans that had mortgage insurance, noting that
mortgage insurers typically took the first loss on a loan and the PRA
would alter that equation with the investor absorbing the full amount
of loss associated with the principal reduction.
Four of the six servicers we contacted told us that investor
restrictions against principal forgiveness would not limit their
ability to offer principal reduction. However, one servicer noted that
about half the loans it serviced had investor restrictions against
principal forgiveness. Another servicer noted that a material number
of its servicing agreements with investors prohibited principal
forgiveness.
Mortgage investors we spoke with expressed concern about PRA's design
and transparency. In particular, they expressed concern that because
the HAMP NPV model did not use an LTV that reflected both the first
and second liens (combined LTV), the model might not reflect an
accurate NPV result. That is, the NPV model might understate the
likelihood of redefault if it did not use the combined LTV. As a
result, investors face the prospect of forgiving principal without
knowing the true redefault risk. Further, although the purpose of PRA
is to address negative equity, not taking the combined LTV into
account would underestimate the population of underwater borrowers
since it would not account for any associated second liens. In
addition, under PRA, servicers must forgive principal on the second
lien in the same proportion as the principal forgiven on the first
lien. However, mortgage investors expressed concern about limited
transparency into whether servicers were forgiving principal on the
second lien. Additionally, SIGTARP recommended in July 2010 that
Treasury reevaluate the voluntary nature of the program and consider
changes to ensure the consistent treatment of similarly situated
borrowers.[Footnote 24] According to Treasury, servicers began
reporting PRA activity in January 2011 for trial and permanent
modifications through December 31, but it is still unclear what level
of program detail Treasury will publicly report. We recommended in
June 2010 that Treasury report activity under PRA, including the
extent to which servicers determined that principal reduction was
beneficial to mortgage investors but did not offer it, to ensure
transparency in the implementation of this program. Treasury officials
told us they would report PRA activity at the servicer level once the
data were available. We plan to continue to monitor Treasury's
reporting of PRA and other TARP-funded housing programs.
Treasury Could Do More to Incorporate Lessons Learned from the First-
Lien Modification Program in Implementing Newer Programs:
In our June 2010 report, we pointed out that it was important that
Treasury incorporate lessons learned from the challenges experienced
with the HAMP first-lien modification program into the design and
implementation of the newer MHA-funded programs.[Footnote 25] In
particular, we noted that it would be important for Treasury to
expeditiously develop and implement these new programs (including 2MP,
HAFA, and PRA) while also developing sufficient program planning and
implementation capacity, including providing program policies and
guidance, hiring needed staff, and ensuring that servicers are able to
meet program requirements. Treasury officials said they solicited
input from servicers and investors when designing 2MP, PRA, and HAFA,
and have begun to perform readiness reviews for these servicers.
However, servicers have cited challenges with changing guidance under
these programs. We also noted that Treasury needed to implement
appropriate risk assessments and meaningful performance measures in
accordance with standards for effective program management. However,
Treasury has not completed program-specific risk assessments, nor has
it developed performance measures to hold itself and servicers
accountable for these TARP-funded housing programs or finalized
specific actions it could take in the event servicers fail to meet
program requirements.
* Program planning and implementation capacity. Treasury has provided
servicers with some guidance on the new programs, but some servicers
said that ongoing changes to the guidelines have presented challenges.
In June 2010, we noted that effective program planning included having
complete policies, guidelines, and procedures in place prior to
program implementation.[Footnote 26] Treasury published initial
guidance for 2MP, HAFA, and PRA prior to the dates these programs were
effective, and some servicers indicated that implementation of these
newer programs was smoother than it was with the first-lien
modification program (see figure 3). However, other servicers
indicated that initial program guidance was unclear and that
additional guidance was issued late in the implementation process. For
example, while Treasury first announced the 2MP program in March 2009,
it did not publish specific 2MP guidelines until August 2009 and then
issued revisions to the guidelines in March 2010, the first month of
official implementation, with revisions in June 2010 and again in
November 2010. According to the servicers we contacted, ongoing
program revisions presented challenges such as needing to retrain
staff and, in some cases, delayed program implementation. Treasury
officials noted that issuing additional guidance improves the program
and is often necessary as circumstances change. Servicers also
reported that while initial guidance for PRA was issued before the
effective date of the program, Treasury did not issue guidance
specific to the NPV 4.0 model until October 1, 2010, the date PRA
became effective. As a result, servicers told us that there was
insufficient time to update internal servicing systems in time to
implement PRA as of its effective date.
Figure 3: Timeline of 2MP, HAFA, and PRA Guidance:
[Refer to PDF for image: time line]
03/4/2009:
Treasury first announces incentives to extinguish junior liens on
homes with first-lien loans that are modified under HAMP, as well as
compensation for completing short sales or deeds-in-lieu.
4/28/2009:
Treasury announces additional details related to the second-lien
modification program.
8/13/2009:
2MP implementation guidance issued”requirement to use LPS to match
first and second liens, but servicers servicing both first and second
liens do not need to wait on LPS‘ matching service to offer 2MP
modification.
11/30/2009:
HAFA implementation guidance issued, with effective date of April 5,
2010.
3/26/2010:
2MP revised”servicers are now required to use LPS to identify all
eligible lien matches for 2MP to offer a 2MP modification, even in
cases where the servicer services both the first and second liens.
HAFA revised to include increased incentives for borrowers, servicers,
and investors. Treasury announces several new housing programs,
including PRA.
6/3/2010:
Principal Reduction Alternative implementation guidance issued, with
effective date of October 1, 2010. 2MP guidance on principal
forgiveness and forbearance revised.
10/1/2010:
Net Present Value model for PRA ready for servicers to use.
10/15/2010:
Revised PRA guidance on consideration of loans that were modified
under HAMP prior to October 1, 2010.
11/23/2010:
Revised 2MP guidance allows servicers servicing both first and second
liens to offer a 2MP modification when they identify a match, even if
LPS has not identified it.
12/2/2010:
Updated version of the MHA Handbook consolidates previously released
guidance and includes guidance for 2MP and HAFA.
12/28/2010:
Revised HAFA guidance on changes in vacancy requirements and timing
for issuing short sale agreements, with effective date of February 1,
2011.
Source: GAO.
[End of figure]
Treasury has also not completed a needed workforce assessment to
determine whether it has enough staff to successfully implement the
new program. In July 2009, we recommended that Treasury place a high
priority on fully staffing vacancies in its Homeownership Preservation
Office (HPO), the office within Treasury responsible for MHA
governance, and fill all necessary positions. According to Treasury
officials, each director within HPO conducts ongoing informal
assessments of staffing needs, and Treasury has recently added two
positions in marketing and communications, as well as two additional
staff to address policies regarding the borrower complaint process. In
addition, two additional staff positions to support the borrower
complaint resolution process have recently been approved by the
staffing board. HPO has also named a Deputy Chief. In addition,
Treasury officials told us that Fannie Mae and Freddie Mac, Treasury's
financial agents for MHA, had doubled the number of staff devoted to
these functions as the complexity of MHA has increased. However, as of
December 2010, Treasury had not conducted a formal workforce
assessment of HPO, despite the addition of the new MHA programs, 2MP,
HAFA, and PRA. As we noted in July 2009, given the importance of HPO's
role in monitoring the financial agents, servicers, and other entities
involved in the $45.6 billion TARP-funded housing programs, having
enough staff with appropriate skills is essential to governing the
program effectively.
Servicers have not demonstrated full capacity to effectively carry out
these programs. Treasury has previously stated that the implementation
of the HAMP first-lien program was hindered by the lack of capacity of
servicers to implement all of the requirements of the program.
According to Treasury, Fannie Mae has conducted program-specific
readiness reviews for the top 20 large servicers for HAFA and PRA,
including all 17 servicers participating in 2MP. These reviews assess
servicers' operational readiness, including developing key controls to
support new programs, technology readiness, training readiness, as
well as staffing resources and program processes and documentation.
According to Treasury officials, 5 servicers have completed readiness
reviews for 2MP, and 5 additional servicers were scheduled to be
surveyed in January 2011; 19 servicers have completed these reviews
for HAFA; and 18 servicers have completed these reviews for PRA.
According to Treasury's summary of these reviews, a large majority of
servicers completing these readiness reviews did not provide all
documentation required to demonstrate that the key tasks needed to
support these programs were in place at the time of the review. Of
those that had complete reviews, 4 had provided all required documents
for HAFA and 3 had provided all required documents for PRA. None of
the servicers provided all required documents for 2MP. Treasury notes
that it relies on Fannie Mae to monitor program readiness and that MHA-
C reviews all programs as part of its on-site reviews. Nonetheless, it
is unclear what actions Treasury has taken to ensure that the
servicers who did not submit the required documentation have the
capacity to effectively implement the programs, making less certain
the ability of these servicers to fully participate in offering
troubled homeowners second-lien modifications, principal reduction,
and foreclosure alternatives.
* Meaningful performance measures and remedies. As we also reported in
June 2010, Treasury must establish specific and relevant performance
measures that will enable it to evaluate the program's success against
stated goals in order to hold itself and servicers accountable for
these TARP-funded programs. While Treasury has established program
estimates of the expected funding levels for 2MP, HAFA, and PRA
programs, it has not fully developed specific and quantifiable
servicer-based performance measures or benchmarks to determine the
success of 2MP, HAFA, and PRA, including goals for the number of
homeowners these programs are expected to help. Treasury officials
told us that they were using the amounts of TARP funds allocated to
MHA servicers to determine estimated participation rates, but this
estimate is adjusted on a quarterly basis and according to Treasury,
is not the best measure for holding servicers accountable. Treasury
officials stated that when data became available they would assess
certain aspects of program performance--for example, they noted that
Treasury planned to assess the redefault rates of modifications that
received PRA or 2MP, compared with those that did not. However,
Treasury has not set benchmarks, or goals, for these performance
measures, as we recommended in June 2010. In addition, Treasury has
not stated how it will use these assessments to hold servicers
accountable for their performance or what remedial actions it will
take in cases where individual servicers are not performing as
expected in these programs. We continue to believe that Treasury
should take steps to establish benchmarks that can be used to hold
servicers accountable for their performance.
* Appropriate risk assessment. We previously reported that agencies
must identify the risks that could impede the success of new programs
and determine appropriate methods of mitigating these risks. In
particular, we highlighted the need for Treasury to develop
appropriate controls to mitigate those risks before the programs'
implementation dates. Although Treasury has not systematically
assessed risks at the program level, Treasury officials told us they
had identified several risks associated with 2MP, HAFA, and PRA and
specified ways to mitigate these risks, and added they were planning
to begin new risk assessments in January 2011 that would be completed
by June 2011. According to Treasury officials, this new round of risk
assessments will include 2MP, HAFA, and PRA, but the programs will not
be evaluated individually.
In addition, Treasury has not yet fully addressed all program-specific
risks. As we have seen, Treasury has acknowledged the risk that the
matching database for 2MP may not identify all first liens modified
under HAMP. While Treasury began addressing this issue in updated
guidance released in November 2010, it cannot yet determine whether
all borrowers eligible for 2MP are being identified and considered for
second-lien modifications. Treasury has also acknowledged several
potential risks with all types of short-sale transactions, including
HAFA transactions. According to Treasury officials, these risks
include those arising from sales to allied parties, side agreements,
and rapid resales. For example, Treasury officials noted a short-sale
purchaser could be inappropriately related to the servicer, allowing
the short sale to be inappropriately engineered to generate extra
compensation for one or both parties. Treasury states that HAFA
includes requirements to mitigate these risks, such as requiring arms-
length transactions. According to Treasury officials, MHA-C, the group
within Freddie Mac that acts as Treasury's financial agent for MHA
compliance activity, is also in the process of developing compliance
procedures to address these risks. Further, Treasury has identified
several potential risks with PRA, including servicer noncompliance
with PRA requirements, moral hazard (the risk that borrowers would
default on their mortgages to receive principal reduction when they
otherwise would not have), and low program participation. According to
Treasury officials, these risks will be mitigated through regular
compliance reviews, servicer reporting of NPV results both with and
without PRA, and other program requirements. For example, to guard
against moral hazard, Treasury requires that borrowers be experiencing
hardship and that servicers forgive the principal over 3 years only if
the borrower remains current on the modified payments. However, low
program participation may continue to be a risk for PRA, despite the
initial participation plans of several of the large servicers. While
Treasury officials told us they plan to monitor the reasonableness of
the extent of principal forgiveness on a servicer-specific basis, we
continue to believe that due to the voluntary nature of the program,
Treasury will need to ensure full and accurate servicer-specific
reporting of program activity for future assessments of the extent to
which servicers are offering PRA when the NPV is higher with principal
forgiveness, as we recommended in June 2010. We plan to continue to
monitor and report on Treasury's risk assessment and control
activities for MHA programs as part of our ongoing oversight of
Treasury's use of TARP funds to preserve homeownership and protect
property values.
Treasury Has Some Data on the Characteristics of Borrowers in HAMP's
First-Lien Program, but Data Were Sometimes Missing or Questionable:
Our analysis of Treasury's HAMP data through September 30, 2010,
indicated that borrowers who entered into trial modifications or
received permanent modifications continued to have elevated levels of
debt, as evidenced by the median back-end DTI for these two groups (55
and 57 percent, respectively).[Footnote 27] Borrowers who received a
trial modification based on stated (unverified) income--a practice
that Treasury no longer permits--were the most likely to have their
trial modifications canceled, and borrowers who were the most
delinquent on their mortgage payments at the time of applying for a
loan modification were the most likely to redefault on their
modifications. While the data Treasury collected from the servicers
provided these and other insights into the characteristics of
borrowers helped under the program, some data were missing and some
information was inaccurate, preventing certain types of analyses of
HAMP borrowers. For example, race and ethnicity information was not
available for a significant portion of borrowers. In addition,
Treasury's data on borrowers' LTV ratios at the time of modification
ranged from 0 to 999, with 1 percent of non-GSE borrowers in active
permanent modifications reporting ratios over 400 percent, implying
that some borrowers who received HAMP modifications did not have a
mortgage, and others had loan amounts more than 4 times the value of
their homes. Treasury said that it and Fannie Mae were continuing to
refine and strengthen data quality checks and that the data would
improve over time.
Certain Factors Increase the Likelihood of Trial Modification
Cancellation and Early Data Indicate that Borrowers Who Redefaulted
from Permanent Modifications Were Further Into Delinquency:
According to Treasury's HAMP data, 88,903 non-GSE borrowers were in
active HAMP trial modifications and 205,449 borrowers were in
permanent modifications as of the end of September 2010. These
borrowers generally cited a reduction in income as their primary
reason for hardship when applying for HAMP modifications.
* Over half of borrowers cited a "curtailment of income," such as a
change to a lower-paying job, as the primary reason they were
experiencing financial hardship (56 percent and 53 percent of those in
active trial and permanent modifications, respectively). However, only
5 percent of borrowers in each of these groups cited unemployment as
their primary reason for hardship.
* Borrowers in trial and permanent modifications through September
2010 also had high levels of debt prior to modification--median front-
end DTI ratios of 45 and 46 percent, and back-end DTI ratios of 72 and
76 percent, respectively. Even after modification, these borrowers
continued to have high debt levels (median back-end DTI ratios of 55
and 57 percent for those in trial and permanent modifications,
respectively). Treasury has defined a high back-end DTI to be 55
percent, and has required borrowers with total postmodification debt
at this level to obtain counseling.
* In addition, borrowers in trial and permanent modifications tended
to be "underwater," with median mark-to-market LTV ratios of 123
percent and 128 percent, respectively.
Borrowers who were unsuccessful in HAMP modifications, either because
they were canceled from a trial modification or because they
redefaulted from permanent modifications, shared several of these
characteristics, including having high levels of debt and being
"underwater" on their mortgages. However, some characteristics
appeared to increase the likelihood that a borrower would be canceled
from a trial modification. Holding other potential factors constant,
the following factors increased the likelihood that a borrower would
be canceled from a trial modification:
* Use of Stated Income. Borrowers who received a trial modification
based on stated income were 52 percent more likely to be canceled from
trial modifications than those who started a trial modification based
on documented income. In some cases, borrowers who received trial
modifications based on stated income were not able to or failed to
provide proof of their income or other information for conversion to
permanent modification.[Footnote 28] In other cases, borrowers may
have submitted the required documentation but the servicer lost the
documents. Over one-third of the 396 housing counselors who responded
to our survey identified servicers losing documentation as the most
common challenge that borrowers have faced in providing the required
documentation for a permanent modification. In December 2010, the
Congressional Oversight Panel also reported that Treasury has failed
to hold loan servicers accountable when they have repeatedly lost
borrowers' paperwork.[Footnote 29]
* Length of Trial Period. Borrowers who were in trial modification
periods for fewer than 4 months were about 58 percent more likely to
have their trial modifications canceled than borrowers in longer trial
periods. This finding may indicate that borrowers who default on their
trial modifications will do so earlier in the process rather than
later.
* Delinquency Level at Time of Modification. Borrowers who were 60 or
90 days or more delinquent at the time of their trial modifications
were 6 and 9 percent more likely to have trial modifications canceled,
respectively, compared with borrowers who were not yet delinquent at
the time of their trial modifications. Treasury has acknowledged the
importance of reaching borrowers before they are seriously delinquent
by requiring servicers to evaluate borrowers still current on their
mortgages for imminent default, but as we noted in June 2010, this
group of borrowers may be defined differently by different
servicers.[Footnote 30] In addition, most borrowers who received HAMP
were delinquent on their mortgages at the time of modification--as of
September 30, 2010, 83 percent of those who had begun trial or
permanent modifications were at least 60 days delinquent on their
mortgages.
According to our analysis, there were also several factors that
lowered the likelihood of trial cancellations, although the effect was
generally smaller than the factors that increased the likelihood of
being canceled.
* High MLTV Ratio. Borrowers who had high MLTV ratios (above 120
percent) were less likely to be canceled from a trial modification
compared to those with MLTV ratios at or below 80 percent. That is,
loans with a MLTV between 120 and 140 percent were 7 percent less
likely to be canceled, while loans with an MLTV of more than 140
percent were 8 percent less likely to be canceled.
* Amount of Principal or Payment Reduction: While only about 2 percent
of borrowers had received principal forgiveness as of September 30,
2010, borrowers who received principal forgiveness of at least 1
percent of their total loan balance were less likely to be canceled
from trial modifications, compared with those who did not receive
principal forgiveness. In addition, larger monthly payment reductions
lowered the likelihood that a trial modification would be canceled.
For example, our analysis showed that borrowers who received a
principal and interest payment reduction of least 10 percent were less
likely to be canceled from their trial modifications than borrowers
who received a payment reduction of less than 10 percent or who had an
increase in payments.
Figure 4 illustrates the extent to which certain factors increase or
decrease likelihood of borrowers being canceled from HAMP trial
modification. See appendix II for further details on our analysis of
factors affecting the likelihood of trial modification cancellation.
Figure 4: Estimated Decrease/Increase in Likelihood of Cancellation of
HAMP Trial Modification by Borrower and Loan Characteristics:
[Refer to PDF for image: illustrated table]
Characteristics: Loan had loan-to-value ratio greater than 140
percent, compared to 80 percent or less;
Change in likelihood of trial modification cancellation: -8%.
Characteristics: Loan had loan-to-value ratio between 120 and 140
percent, compared to 80 percent or less;
Change in likelihood of trial modification cancellation: -7%.
Characteristics: Borrower received principal forgiveness of between 1
and 50 percent of total loan balance;
Change in likelihood of trial modification cancellation: -6%.
Characteristics: Borrower's principal and interest payment on loan
reduced by more than 20 percent, compared to a decrease of 10 percent
or less or an increase;
Change in likelihood of trial modification cancellation: -5%.
Characteristics: Borrower's principal and interest payment on loan
reduced by between 10 and 20 percent, compared to a decrease of 10
percent or less or an increase;
Change in likelihood of trial modification cancellation: -5%.
Characteristics: Borrower was 60 to 89 days delinquent prior to trial
modification, compared to being current on mortgage payments;
Change in likelihood of trial modification cancellation: 6%.
Characteristics: Borrower was 90 or more days delinquent prior to trial
modification, compared to being current on mortgage payments;
Change in likelihood of trial modification cancellation: 9%.
Characteristics: Borrower was evaluated for trial modification based on
stated income prior to June 1, 2010);
Change in likelihood of trial modification cancellation: 52%.
Characteristics: Borrower was in trial modification period for 4
months or less;
Change in likelihood of trial modification cancellation: 58%.
Source: GAO analysis of Treasury data.
[End of figure]
In addition, our initial observations of over 15,000 non-GSE borrowers
who had redefaulted from permanent HAMP modifications through:
September 2010 indicated that these borrowers differed from those in
active permanent modifications in several respects. Specifically, non-
GSE borrowers who redefaulted on their HAMP permanent modifications
tended to have the following characteristics:
* higher levels of delinquency at the time of trial modification
evaluation (median delinquency of 8 months compared to 5 months for
those still in active permanent modifications);
* lower credit scores, although borrowers current on their HAMP-
modified payments also had low median credit scores (525 and 552,
respectively);
* lower median percentage of payment reduction compared with those who
were still current in their permanent modifications (24 percent
compared with 33 percent for those who were still current in their
permanent modifications); and:
* lower levels of debt before modification than borrowers who did not
redefault (median front-end DTI ratio of 41 percent prior to
modification compared to 46 percent front-end DTI ratio for those
still current in their permanent modifications)--these borrowers
likely did not receive as much of a payment reduction from the
modification due to lower levels of debt to begin with.
These results were largely consistent with information that the
Federal Deposit Insurance Corporation (FDIC) released on the
performance of its IndyMac loan modifications. For example, FDIC found
that borrowers' delinquency status prior to loan modification
correlated directly with redefault rates after modification, with a 1-
year redefault rate of roughly 25 percent for borrowers who were 2
months delinquent at the time of modification compared to a nearly 50
percent redefault rate for those who were more than 6 months
delinquent at the time of modification.[Footnote 31] FDIC also
reported that the redefault rates for its IndyMac modifications
declined markedly with larger reductions in monthly payments.
Some Key Information on HAMP Borrowers and Applicants Was Missing or
Inaccurate in Treasury's Database:
Treasury's data on HAMP provide important information and insights on
characteristics of borrowers who are in trial and permanent
modification, who have been canceled from trial modifications, and who
have redefaulted from permanent modifications. However, Treasury's
database contained information that was inaccurate or inconsistent,
and Treasury does not collect information on all borrowers who are
denied HAMP modifications. For example, Treasury's data on borrowers'
LTV ratios at the time of modification ranged from 0 to 999, with 1
percent of non-GSE borrowers in active permanent modifications
reporting ratios over 400 percent, implying that some borrowers who
received HAMP modifications did not have a mortgage, and others had
loan amounts more than 4 times the value of their homes. Some data
elements also included internal inconsistencies. For example, a
borrower's back-end DTI (the ratio of total monthly debt-to-gross
monthly income) includes the front-end DTI (the ratio of monthly
housing debt-to-gross monthly income) and, therefore, should always at
least be equal to the front-end DTI. However, according to Treasury's
database, 29 percent of those in trial modifications and 40 percent of
those who had trial modifications canceled had back-end DTIs that were
less than their front-end DTIs. The quality of these data improved for
those who received permanent modifications, with only 3 percent of
these borrowers showing back-end DTIs that were less than the front-
end DTIs.
Treasury acknowledged that its HAMP database contained some
inconsistencies, despite edit checks conducted by Fannie Mae as the
HAMP administrator. According to Treasury, the inconsistencies
continue because of servicers' data-entry errors, data formatting
mistakes such as entering percentages as decimals rather than whole
numbers, and data mapping problems. Treasury said it was continuing to
work with Fannie Mae to refine and strengthen data quality checks and
that the data has and will continue to improve over time. For example,
Treasury noted that since September 2010, it has worked to improve the
quality of borrower and loan attributes such as back-end DTI and
modification terms. Treasury officials said that the error rate on
these data elements has dropped from 16 percent and 12 percent for
trial and permanent modifications, respectively, to 2 percent and 10
percent.
Treasury's HAMP database also was missing a significant amount of
information on borrowers' race and ethnicity, resulting in an
inability to date to assess whether HAMP is being fairly implemented
across servicers. For example, as of September 30, 2010, race and
ethnicity information was not available for 65 percent of non-GSE
borrowers in active trial modifications. A significant portion of
borrowers declined to report this information--that is, for 45 percent
of non-GSE borrowers in active trial modifications the category was
marked as "not provided by borrower." However, for another 20 percent,
some data are simply missing, with no category marked. Some of this
information may be missing because servicers were not required to
report borrowers' race and ethnicity until after December 1, 2009. As
a result, Treasury lacks complete information needed to be able to
determine whether the first-lien modification program has been
implemented fairly across all borrowers.
In addition, Treasury acknowledged data-mapping problems with race and
ethnicity data that resulted in some data being included in the system
of record, but inadvertently excluded from the database. Combined,
these factors resulted in a large proportion of borrowers without race
and ethnicity information, as of September 30, 2010. According to
Treasury officials, Fannie Mae was making improvements to the data
mapping, which should allow Treasury to better evaluate whether HAMP
is being implemented fairly across all borrowers. Treasury officials
told us they anticipated that the more complete data would be ready to
use in early 2011. On January 31, 2011, Treasury announced the
availability of loan-level HAMP data to the public for the first time.
The data files were as of November 30, 2010, and included information
on borrowers' race and ethnicity. According to Treasury, these data
indicated that roughly 31 percent of borrowers who started trial
modifications after December 1, 2009, did not report race and
ethnicity data. Treasury also reported approximately 6 percent of data
as not applicable or not reported by the servicer. In addition,
roughly 57 percent of those who were denied or did not accept trial
modifications did not report or were missing this information.
Finally, Treasury's HAMP database did not contain information on all
borrowers who were denied HAMP, as some borrowers were denied before
income information was collected for a net present value test.
Treasury currently requires servicers to report identifying
information, such as borrowers' names and Social Security numbers, as
well as the reason for denial for all borrowers denied modification,
but other data elements--including income information, level of
delinquency, LTV, and GSE or non-GSE status--is not required to be
collected by servicers if borrowers are denied because they do not
meet basic eligibility requirements such as the property being owner-
occupied. According to data we received from Treasury, through
September 30, 2010, some information was lacking on 85 percent of
borrowers who were denied HAMP trial modifications, including monthly
gross income amounts and the number of months in delinquency. Treasury
noted that these data are incomplete because they are unobtainable by
the servicers and not a good use of servicer resources to obtain.
While we recognize that servicers may be unable to collect information
from borrowers who were previously denied trial modifications, going
forward it will be important for Treasury to collect sufficient
information from servicers to assess program gaps. According to
Treasury, it has requested servicers to report on borrowers who were
denied HAMP when low volumes of these data were received.
Most Borrowers Denied or Canceled from Trial Modifications Appear to
Have Avoided Foreclosure To Date, but Weaknesses in Treasury's Data
Collection Limit its Ability to Understand the Outcomes of These
Borrowers:
Because there have been more HAMP trial modification cancellations
than conversions to permanent modifications, we evaluated Treasury's
reporting of the disposition paths, or outcomes, of borrowers who were
denied or canceled from HAMP trial modifications and obtained
additional information from six large MHA servicers to understand the
extent to which these borrowers have been able to avoid foreclosure to
date. While it appears that the majority of these borrowers had been
able to avoid foreclosure as of the time of our data collection and
Treasury's survey, if borrowers are being evaluated for a loss
mitigation option such as a proprietary modification and the servicer
has also started foreclosure proceedings, Treasury's data reporting
template will result in a loan being reported only as a proprietary
modification or the other applicable loss mitigation category,
understating the number of borrowers who have had foreclosure
proceedings started. In addition, Treasury's reporting of outcomes for
these borrowers does not differentiate between borrowers who received
proprietary modifications and those who were still being evaluated for
these modifications, some of whom will not ultimately receive them.
For example, for six large servicers, Treasury reported that 43
percent of borrowers who had their trial modification canceled
received proprietary modifications.[Footnote 32] However, the reported
43 percent includes both borrowers who had received proprietary
modifications and those who were being evaluated for proprietary
modifications. Data we collected from the same servicers indicate that
only 18 percent of borrowers with canceled trial modifications
received permanent proprietary modifications, while another 23 percent
had pending but not yet approved permanent modifications. Without a
complete picture of the outcomes of those borrowers who were denied or
canceled from HAMP, Treasury cannot accurately evaluate the outcomes
for these borrowers and determine whether further action may be needed
to assist this group of borrowers.
Treasury's Reporting Does Not Fully Reflect the Current Disposition
Actions for Borrowers Denied or Canceled from HAMP:
According to HAMP guidelines, servicers must consider all potentially
HAMP-eligible borrowers for other loss mitigation options, such as
proprietary modifications, payment plans, and short sales, prior to a
foreclosure sale. To report the current outcomes of borrowers who
applied for but did not receive a HAMP trial modification or had a
HAMP trial modification canceled, Treasury surveys the eight largest
HAMP servicers each month and publishes these data in the monthly
servicer performance reports. However, Treasury's requirements for
reporting these data produce results that do not fully reflect all
outcomes for borrowers who were denied or canceled from HAMP and
overstate the proportion of some outcomes. First, in order to prevent
double counting of transactions, the survey does not allow servicers
to place a borrower in more than one outcome category. Additionally,
servicers must follow the order in which Treasury lists the outcomes
on the survey. However, this does not allow for the accurate reporting
of borrowers being considered for multiple potential outcomes. For
example, a servicer could be evaluating a borrower who had been denied
a HAMP modification for a proprietary modification at the same time
that the servicer started foreclosure proceedings. But the Treasury
survey would capture only the proprietary modification, because that
category is the first in the list of possible outcomes. Because
servicers are allowed to evaluate borrowers for loss mitigation
options while simultaneously starting foreclosure, Treasury's
requirement that borrowers be included in only one category, starting
with proprietary modifications, likely overstates the proportion of
borrowers with proprietary modifications while also understating the
number of borrowers who have started foreclosure.
Furthermore, a comparison of Treasury's data to data we received from
six large MHA servicers on the outcomes of borrowers denied a HAMP
trial modification showed that Treasury's requirement that servicers
place borrowers according to a specific order of outcomes may result
in an understatement of the number of borrowers becoming current. For
example, according to the data we received, almost 40 percent of
borrowers who were denied a HAMP trial modification became current
without any additional assistance from the servicer as of August 31,
2010. In comparison, Treasury reported only 24 percent of borrowers
became current after applying for but not receiving a HAMP trial
modification through these same servicers. While differences may exist
between the populations of these data, a servicer we spoke with noted
one reason that the percentage of current borrowers in the Treasury
survey was lower than the percentage reported in our data was
Treasury's requirement that servicers report outcomes in a certain
order, with "borrower current" being in last place.[Footnote 33] As a
result, borrowers are reviewed for all other outcomes before being
reflected in this category. Placing borrowers only in one category
according to a specific order may not reflect all of the outcomes
experienced by these borrowers and may understate outcomes further
down the list, such as starting foreclosure or becoming current.
Second, while Treasury's survey includes an "action pending" category,
all six of the servicers we spoke with told us that Treasury had
instructed them to include borrowers who were being evaluated for an
outcome in their respective outcome categories, such as proprietary
modification, rather than the "action pending" category. Treasury
recently instructed servicers to use the action pending category only
if a borrower had recently been denied a HAMP trial modification, had
a HAMP trial modification canceled, or fallen out of another
disposition path such as a proprietary modification, and the servicer
has not yet determined the next step for the borrower. Because the
proprietary modification category includes borrowers who are still
being evaluated for modifications as well as those who have received
them, the number of borrowers who actually received a proprietary
modification cannot be determined from Treasury's data. For example,
for the outcomes of borrowers who had a canceled HAMP trial
modification, we asked six large MHA servicers to separate borrowers
who were being evaluated for permanent proprietary modifications from
those who had actually received them. For these same six servicers,
while Treasury reported that 43 percent of borrowers who canceled from
a HAMP trial modification through August 2010 were in the process of
obtaining a proprietary modification, the data we received indicated
that 18 percent of these borrowers had received permanent proprietary
modifications, and 23 percent were in the process for being approved
for one.[Footnote 34] By including borrowers who received permanent
proprietary modifications alongside borrowers who were still in the
process for getting one, Treasury may not fully understand the extent
to which servicers are providing permanent assistance to borrowers
being denied or canceled from HAMP trial modifications.
While Treasury has taken steps to collect data on the outcomes of
borrowers who do not receive a HAMP trial or permanent modification--
data that could be used to assess the extent to which these borrowers
are receiving other loss mitigation programs--the way in which
Treasury has asked servicers to report these data overstates the
proportion of certain outcomes and understates others, such as
starting foreclosure proceedings. In addition, Treasury's reporting
does not differentiate between those who have received a proprietary
modification and those who are being evaluated for one. If the
information presented in the monthly servicer performance reports does
not fully reflect the outcomes of these borrowers, Treasury and the
public will not have a complete picture of their outcomes. Further,
Treasury cannot determine the extent to which servicers provided
alternative loss mitigation programs to borrowers denied or canceled
from HAMP or evaluate the need for further action to assist this group
of borrowers.
Outcomes of Borrowers Vary by Whether Borrowers were Denied, Canceled,
or Redefaulted, and by Servicer:
We requested data from six servicers on the outcomes of borrowers who
(1) were denied a HAMP trial modification, (2) had a canceled HAMP
trial modification, or (3) redefaulted from a HAMP permanent
modification. According to the data we received, of the about 1.9
million GSE and non-GSE borrowers who were evaluated for a HAMP
modification by these servicers as of August 31, 2010, 38 percent
(713,038) had been denied a HAMP trial modification; 27 percent
(505,606) had seen their HAMP trial modifications canceled; and 1
percent (20,561) had redefaulted from a HAMP permanent modification.
[Footnote 35] We requested that the servicers report all of the
outcomes borrowers had received and they separate those who were being
evaluated for an outcome from those who had received them.[Footnote
36] According to the data we received, borrowers experienced different
outcomes, depending on whether they were denied a HAMP trial
modification, received but were canceled from a trial modification, or
redefaulted from a permanent modification.
According to these servicers' data through August 31, 2010, borrowers
who were denied HAMP trial modifications were more likely to become
current on their mortgages without any additional help from the
servicer (39 percent) than to have any other outcome (see figure 5).
[Footnote 37] According to one servicer, borrowers who were denied a
HAMP trial modification were often current when they applied for a
HAMP modification and, once denied, were likely to remain current. In
addition, 9 percent of these borrowers paid off their loans. Twenty-
eight percent of borrowers who had been denied trial modifications
received or were in the process for receiving a permanent proprietary
modification or a payment plan.[Footnote 38] Servicers initiated
foreclosure proceedings on 17 percent at some point after being
denied, while only 3 percent of borrowers completed
foreclosure.[Footnote 39] Several servicers explained that loss
mitigation efforts can often work in tandem, so a borrower could be
referred for foreclosure and evaluated for another outcome at the same
time, and borrowers who were referred for foreclosure may not
necessarily complete it.
Figure 5: Outcomes of Borrowers Denied a HAMP Trial Modification,
through August 31, 2010 (Six large MHA servicers):
[Refer to PDF for image: vertical bar graph]
Borrower current: 38.62%.
Loan Payoff: 8.7%.
Proprietary modification: 10.18%; (pending action: 11.49%).
Payment plan: 6.51%; (pending action: 0.12%).
Foreclosure alternative[A]: 1.4%; (pending action: 1.76%).
Foreclosure start: 16.91%.
Foreclosure completion: 2.83%.
Other categories[B]: 12.45%.
Source: GAO analysis of data received from six large MHA servicers.
Note: Borrowers may be included in more than one category.
[A] The percentage of borrowers who received a foreclosure alternative
may include borrowers who have a short-sale agreement signed but have
not closed on the short sale.
[B] Other categories include borrowers who had a bankruptcy in process
and no other loss mitigation effort was allowed at some point after
being denied, canceled, or redefaulting; borrowers who had action
pending outside of a proprietary modification, payment plan, or
foreclosure alternative; and borrowers not able to be reflected in any
of the other outcomes, such as borrowers who currently have no workout
plan in process.
[End of figure]
Of those borrowers who were canceled from a HAMP trial modification,
servicers often initiated actions that could result in the borrower
retaining the home. Specifically, 41 percent of these borrowers
received or were in the process for receiving a permanent proprietary
modification, and 16 percent received or were in the process for
receiving a payment plan (see figure 6). However, servicers started
foreclosure proceedings on 27 percent of borrowers at some point after
the HAMP trial modification being canceled, but, similar to borrowers
who were denied a HAMP trial modification during this time period, a
small percentage completed foreclosure (4 percent). Compared with
borrowers who were denied, borrowers who had a HAMP trial modification
canceled were less likely to become current on their mortgages (15
percent) or to pay off their loan (4 percent).
Figure 6: Outcomes of Borrowers who Had a Canceled HAMP Trial
Modification, through August 31, 2010 (Six large MHA servicers):
[Refer to PDF for image: vertical bar graph]
Borrower current: 14.95%.
Loan Payoff: 3.64%.
Proprietary modification: 18.49%; (pending action: 22.8%).
Payment plan: 14.45%; (pending action: 2.04%).
Foreclosure alternative[A]: 1.08%; (pending action: 6.96%).
Foreclosure start: 26.62%.
Foreclosure completion: 3.57%.
Other categories[B]: 18.31%.
Source: GAO analysis of data received from six large MHA servicers.
Note: Borrowers may be included in more than one category.
[A] The percentage of borrowers who received a foreclosure alternative
may include borrowers who have a short-sale agreement signed but have
not closed on the short sale.
[B] Other categories include borrowers who had a bankruptcy in process
and no other loss mitigation effort was allowed at some point after
being denied, canceled, or redefaulting; borrowers who had action
pending outside of a proprietary modification, payment plan, or
foreclosure alternative; and borrowers not able to be reflected in any
of the other outcomes, such as borrowers who currently have no workout
plan in process.
[End of figure]
There were wide ranges in the outcomes among servicers we contacted
for borrowers who were canceled from HAMP trial modifications (see
table 1). For example, of those borrowers who had a canceled HAMP
trial modification, one servicer reported that 26 percent had obtained
a proprietary modification through August 31, 2010, compared with 14
percent for another servicer. In addition, for borrowers who had a
canceled HAMP trial modification, one servicer reported foreclosure
completion rates of almost 7 percent, while another servicer reported
foreclosure completion rates of roughly 1 percent. Servicers reported
a wide range of outcomes, which depend on factors such as the
composition of loan portfolios and proprietary loss mitigation
programs, including modifications, payment plans, and short sales.
These programs can differ in design and may have, among other things,
different eligibility requirements for borrowers.
Table 1: Selected Outcomes of Borrowers who Had a Canceled HAMP Trial
Modification by Servicer, through August 31, 2010:
Servicer 1;
Proprietary modification: 24%;
Payment plan: 4%;
Current: 12%;
Foreclosure alternative[A]: 1%;
Foreclosure completion: 5%;
Action pending: Proprietary modification: 26%;
Action pending: Payment plan: N/A[B];
Action pending: Foreclosure alternative: 4%.
Servicer 2;
Proprietary modification: 22%;
Payment plan: 76%;
Current: 35%;
Foreclosure alternative[A]: 2%;
Foreclosure completion: 2%;
Action pending: Proprietary modification: 6%;
Action pending: Payment plan: N/A;
Action pending: Foreclosure alternative: 2%.
Servicer 3;
Proprietary modification: 26%;
Payment plan: 1%;
Current: 3%;
Foreclosure alternative[A]: 1%;
Foreclosure completion: 7%;
Action pending: Proprietary modification: 24%;
Action pending: Payment plan: N/A;
Action pending: Foreclosure alternative: 2%.
Servicer 4;
Proprietary modification: 14%;
Payment plan: 1%;
Current: 15%;
Foreclosure alternative[A]: 2%;
Foreclosure completion: 1%;
Action pending: Proprietary modification: 16%;
Action pending: Payment plan: 6%;
Action pending: Foreclosure alternative: 14%.
Servicer 5;
Proprietary modification: 20%;
Payment plan: 1%;
Current: 1%;
Foreclosure alternative[A]: 2%;
Foreclosure completion: 3%;
Action pending: Proprietary modification: 39%;
Action pending: Payment plan: =55;
Mean: 0.2263;
Median: 0;
Standard Deviation: 0.4586;
Minimum: 0;
Maximum: 1.
If trial modification canceled: Back-end DTI flag[B];
Mean: 0.2352;
Median: 1;
Standard Deviation: 0.4776;
Minimum: 0;
Maximum: 1.
If trial modification canceled: If mark-to-market LTV (MLTV) 140%;
Mean: 0.0988;
Median: 0;
Standard Deviation: 0.3510;
Minimum: 0;
Maximum: 1.
If trial modification canceled: MLTV flag[C];
Mean: 0.1056;
Median: 0;
Standard Deviation: 0.4461;
Minimum: 0;
Maximum: 1.
If trial modification canceled: If borrower's payments are current;
Mean: 0.6298;
Median: 0;
Standard Deviation: 0.1190;
Minimum: 0;
Maximum: 1.
If trial modification canceled: If 30 days delinquent;
Mean: 0.8567;
Median: 0;
Standard Deviation: 0.3691;
Minimum: 0;
Maximum: 1.
If trial modification canceled: If 60 days delinquent;
Mean: 0.2107;
Median: 0;
Standard Deviation: 0.2984;
Minimum: 0;
Maximum: 1.
If trial modification canceled: If 90 days or more delinquent;
Mean: 0.6196;
Median: 0;
Standard Deviation: 0.3073;
Minimum: 0;
Maximum: 1.
If trial modification canceled: If trial length ChiSq: ChiSq: = 620;
Marg. effect: 0.0066;
Estimate: 0.0426;
Standard error: 0.00717;
Pr >ChiSq: = 55%;
Marg. effect: -0.0229;
Estimate: -0.1468;
Standard error: 0.00711;
Pr >ChiSq: ChiSq:
