Homeowners Continue to Drop Out of Modification Program

The track record of mortgage modifications under the government's Home Affordable Mortgage Program (HAMP) isn't getting any better with the passage of time.

In its latest Housing Scorecard, the U.S. Treasury Department says more than half of the 1.4 million homeowners who entered the program have dropped out.

"The recent reports of problems in the foreclosure process underscore the importance of helping responsible homeowners avoid the pain of foreclosure," said acting Assistant Secretary for Financial Stability Timothy Massad. "As we implement additional program enhancements to reach more homeowners, we continue to stress to mortgage servicers the importance of making every effort to enroll eligible homeowners in HAMP and provide meaningful alternatives to avoidable foreclosures."

The program has suffered problems from the start, with thousands of homeowners complaining that mortgage servicers asked for documents multiple times and fail to give them correct information. Many have said they thought they were in the middle of the modification process, only to receive a notice of foreclosure.

Losing ground

The October Scorecard shows the problem is actually getting a little worse. Through October, 54 percent of participates have fallen out of the HAMP program. The toll was 53 percent in September.

The Scorecard does point to some developments in the housing market that it identifies as encouraging. It found that another one million homeowners refinanced mortgages in the last quarter, taking advantage of historic low rates. Since April 2009, record low interest rates have helped more than 8.3 million homeowners to refinance, resulting in more stable home prices and $15.2 billion in annual borrower savings, the government says.

Also, home prices remained level in the past year after 33 straight months of decline. Homeowners added $95 billion in home equity in the second quarter.

More than 3.73 million modification arrangements were started between April 2009 and the end of August 2010 --more than double the number of foreclosure completions during that time, the report notes.  

"These modification arrangements included nearly 1.4 million trial Home Affordable Modification Program (HAMP) modification starts, more than 600,000 Federal Housing Administration (FHA) loss mitigation and early delinquency interventions, and nearly 1.8 million proprietary modifications under HOPE Now," the report said. "While some homeowners may have received help from more than one program, the number of agreements offered were more than double the number of foreclosure completions for the same period."