A day after the Treasury boasted about meeting its loan modification goal early, the Congressional Oversight Panel called its foreclosure mitigation efforts “inadequate.”
“The program is limited to certain mortgage configurations. Many of the coming foreclosures are likely to be payment option adjustable rate mortgage and interest-only loan resets, many of which exceed HAMP eligibility limits.”
I mentioned the idea of an option arm bailout the other day, as it seems to be a major concern now and something officials are currently grappling with.
The group also warned that the Treasury’s strategy doesn’t address foreclosures due to unemployment, which seems to be one of the major drivers nowadays.
Additionally, the Panel argued that foreclosure starts have outpaced HAMP trial loan modifications at a rate of more than two to one, meaning those in need may succumb to foreclosure before the program actually reaches them.
“Even once the program is fully operational, Treasury’s own projections indicate, in the best case, fewer than half of the predicted foreclosures would be avoided.”
The Panel believes many foreclosures are simply delayed, not avoided, as many HAMP modifications are not permanent, meaning they adjust in five years, similar to adjustable-rate mortgages.
Then there are the underwater borrowers, some of which can receive help via the program, but only to a max loan-to-value of 125 percent.
“The Panel is also concerned about homeowners who face negative equity or are “underwater” – that is, the value of the loan exceeds the value of their home.”
“For many borrowers, HAMP modifications increase negative equity, a factor that appears to be associated with increased rates of re-default.”