The Wall Street Journal
By: Nick Timiraos
May 30, 2013
The Obama administration is set to announce Thursday that its signature consumer-mortgage modification initiative, due to expire at the end of the year, will be extended for two more years.
Senior administration officials said Wednesday that despite a nascent housing-market recovery, it didn't make sense to dismantle the Home Affordable Modification Program, or HAMP, given the real-estate bust's lingering damage.
About 1.1 million borrowers were in some stage of foreclosure at the end of April, according to a report released Wednesday by CoreLogic, and banks have been completing some 52,000 foreclosures a month.
President Barack Obama unveiled HAMP to great fanfare one month after he took office in 2009, but it quickly ran into a series of setbacks. Officials wanted to ensure taxpayer money wasn't wasted, so they required lots of documentation. That created headaches as banks rejected borrowers who they said provided incomplete forms, while borrowers routinely complained that banks lost their paperwork. The House of Representatives voted to scrap the program two years ago, though the measure wasn't taken up in the Senate.
Over the past two years, officials have quietly retooled the program, adding features that encourage banks to write down loan balances for borrowers who owe more than their homes are worth. They also have relaxed some requirements on documenting borrowers' incomes and occupancy.
The government has struggled to spend the $29.9 billion allocated for HAMP, with just $5.2 billion spent through March. Nearly 1.2 million borrowers have received a permanent modification via HAMP, and about 866,000 modifications were active through March. The program encourages mortgage companies to lower borrowers' monthly payments to about 31% of their incomes by extending loan terms, reducing interest rates and forgiving principal.
Officials say the program, which has faced heavy criticism from Republicans and Democrats alike, has helped to provide the mortgage industry with a template for altering mortgages. Federal data show loan modifications have performed far better using the techniques HAMP helped to pioneer.
Last year, the Obama administration sought to encourage bailed-out mortgage companies Fannie Mae and Freddie Mac to participate in the principal-write-down component of HAMP by offering to split the costs of those modifications. The mortgage firms' federal regulator refused, saying the benefits didn't clearly outweigh potential costs.
The administration also spearheaded a $25 billion settlement with five large banks which required them to write down loans and provide other aid to borrowers.
Earlier this year, the mortgage companies' regulator said it would also extend a companion refinance initiative, the Home Affordable Refinance Program, through 2015.