Fitch: End of HAMP Reduces Options for Struggling U.S. Homeowners

Fitch Ratings, New York, said the Dec. 31 end of the Treasury Department’s Home Affordable Modification Program should likely result in fewer loan modifications, with those completed coming from proprietary modification programs with quicker decision making for struggling U.S. homeowners.

Launched in 2009, HAMP was designed to provide financial incentives to homeowners, servicers and investors to modify the first lien mortgage of qualified borrowers who are behind on their mortgage, or in danger of imminent default due to financial hardship. HAMP loan modifications have accounted for nearly 50% of all loan modifications completed this year.

Fitch Managing Director Roelof Slump said the end of HAMP comes against a backdrop of an improved economy and strong home price growth, which has reduced the need for loan modifications in recent years. HAMP monthly applications have dropped steadily and are now approximately 70 percent below the monthly average at the start of the program. However, he notes several implications to the end of HAMP:

–As the total number of loan modifications declines, non-HAMP “proprietary” modifications will be used more frequently;

–More proprietary modifications will lead to less consistency of servicer modification approaches across the industry;

–Modification decision timelines will shorten, which may lead to a modest reduction in liquidation timelines.

“Borrowers applying for modifications in 2017 may find greater ease in the documentation gathering process and faster approval/decline decisions,” Slump said. “However, features of proprietary modifications differ across servicers and this can be further impacted by approaches taken by the investors in the loans.”

Slump noted HAMP provided for unification of loss mitigation policies across the broad mortgage servicing industry. HAMP’s approach of using a three-month trial period with a roll to permanent modification has been widely adopted across the industry and is also used for proprietary modification programs. “However, the parameters of proprietary modification programs differ across mortgage servicers including varying approaches to documentation requirements and debt-to-income ratios,” he said. “As proprietary modifications increase to replace HAMP, the overall variability in modifications is expected to increase.”

Currently servicers first perform full reviews of applications for acceptability to HAMP guidelines; ineligible candidates are usually subsequently screened for acceptability under proprietary modification programs. “The end of HAMP removes this initial step and servicers will likely be able to make faster modification decision,” Slump said. “This may contribute to shorter liquidation timelines for the portion of loans that do not qualify for proprietary modifications. To be clear, the end of HAMP does not mean the end of available help to borrowers still struggling with their mortgage payments as other existing programs remain available.”