Way back in 2009, President Obama's Treasury Department launched the Home Affordable Modification Program, a massive authorization to help homeowners struggling with their mortgages in the wake of the financial crisis. 1.2 milllion people participated in the program at a cost to taxpayers of $4.4 billion.
A report [pdf] dropped this week from the Office of the Special Inspector General for TARP (SIGTARP) that HAMP has a stunning failure rate. Of the 1.2 million HAMP participants, 306,000 have re-defaulted on their mortgages, at an additional cost to taxpayers of $815 million. What's more, another 88,000 homeowners in the HAMP program have missed payments and are at risk to re-default.
Twenty-two percent of homeowners who have redefaulted on their HAMP permanent mortgage modifications have moved into the foreclosure process. The Administration’s stated goal for the housing initiative was “to help as many as three to four million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term.” However, since 2009, during each year of the program, an increased number of homeowners redefaulted on HAMP permanent mortgage modifications. Redefault rates of the oldest 2009 HAMP permanent mortgage modifications have continued to increase as they age at a redefault rate of 46%. The 2010 HAMP permanent mortgage modifications are redefaulting at a rate of 38%. Treasury’s data continue to demonstrate that the longer homeowners remain in HAMP, the greater the chance that they will redefault on their permanent modification and fall out of the TARP program. For the substantial number of homeowners who redefault, their modification was not sustainable. It is crucial that Treasury recognize this problem and take proactive steps to ensure that HAMP lives up to its promise and potential.
HAMP has been re-authorized to be in effect through 2015. An aggressive housing policy would have and could still be a very effective economic program to help America's still-struggling economy - but it's important to recognize the risk of having the government takeover some of the riskiest loans. There are important policies that could be pursued, though. As I described earlier this year, a HAMP reform focused on principal forgiveness could save the government money, help the housing market and boost the economy.