The End of an Era – HAMP is over

The close of business on Friday, December 30, 2016 was the last time a HAMP (“Home Affordable Mortgage Program”) loan modification application could be accepted. After several extensions, the HAMP program has finally come to end, not with a bang, but a whimper. As the last HAMP applications came in, the event didn’t even register a blip on the media radar. However, this is a very important event for homeowners in default with mortgages having unpaid principal balances under $730.000.

But HAMP was rolled out with more of a bang than a whimper. Amid the worst financial crisis in United States history, the Federal Government set out to help millions of homeowners on the brink of foreclosure. Falling behind on mortgage payments was no longer a personal issue but rather a national problem. In 2008, a mass effort to lower foreclosure rates was launched by the Obama administration through the Home Affordable Modification program (HAMP). HAMP was part of the Making Home Affordable program (MHA), established in concert with the Hardest Hit Fund program (HHF) under the Troubled Asset Relief Program (TARP), a part of the Emergency Economic Stabilization Act of 2008. TARP was a $700 Billion taxpayer bailout effort, with nearly $28 Billion was paid to banks by the Fed to have them lower interest rates and the monthly payments of borrowers. Most of the loans started at a 2% rate, which was lower than homeowners in good standing could ever hope to achieve.

Unfortunately, as with many government programs, the results did not meet expectations. The plan was to keep 4 million homeowners out of foreclosure by the time it was set to expire in 2012. Even after three extensions, only a total of 1.6 million people benefited from the Home Affordable Modification Program. In our mind, the main problem was not that applicants did not qualify for the benefits provided by HAMP, it was rather that banks were incorrectly telling homeowners they did not qualify for help. Hence, nearly 70% of people who applied for the program were denied assistance, according to government data. Gomez & Simone is all too aware that lenders repeatedly lost homeowners’ paperwork or erroneously denied their applications. Moreover, about a third of homeowners who did receive modification eventually fell behind on their payments again.

Despite the disappointing number of people helped by HAMP, even critics have to admit that HAMP forced the banking industry to change its approach toward distressed borrowers. Before the HAMP program, banks had differing approaches to helping borrowers who were behind on their mortgage payments. The HAMP program lifted industry standards and set common practices that most banks adopted even when operating outside HAMP. For example, many use the “Modified loan payment must be less than 31% of borrower’s gross income” Rule. So in the end, while results did not meet expectations, the HAMP program may have left a lasting positive legacy.