A recent report from the National Consumer Law Center on the Home Affordable Modification Program, commonly known as HAMP, examined the government’s use of the program and provided recommendations for mortgage reform.
HAMP is the most successful loan modification program in history, though it is set to expire at the end of 2013.
The report revealed that HAMP allowed for “win-win” loan modifications that benefit both investors and borrowers because such loan modifications must undergo rigorous economic analysis referred to as the net present value test. The test takes into account the risk of the modification’s failure, ensuring that investors will benefit from the venture.
Loan modifications made before HAMP came along saw significant failure rates, but one year after HAMP modifications were made, more than 80 percent of HAMP-compliant modifications are still performing and continue to perform much better than non-HAMP modifications.
Though HAMP has provided benefits to homeowners, investors and the larger economy, loan servicers have not offered the modifications to between three million and four million eligible borrowers, and the number of monthly HAMP modifications initiated every month is on the decline.
“Without strong mandates and enforceable consequences for noncompliance, servicers will continue to implement modifications haphazardly or not at all, leaving the economy in a tailspin,” the NCLC said.
The NCLC provided five recommendations, saying that the successes of HAMP should be included in national loan modification standards. The recommendations include the standardization of all loan modification evaluations, affordable and fair loan modification terms similar to HAMP’s, increased accessibility, enhanced transparency and accountability, and the protection of homeowners from non-compliant servicers.