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Wednesday, February 24, 2010

97,000 Homeowners in "Loan Mod Limbo"

by Calculated Risk on 2/24/2010 05:03:00 PM

Paul Kiel at ProPublica reports: Chase and Other Servicers Leave Many in Loan Mod Limbo; Treasury Threatens Penalties

About 97,000 homeowners in the government’s mortgage modification program have been stuck in a trial period for over six months. Most of them, about 60,000, have their mortgages with a single mortgage servicer, JPMorgan Chase.

Trial periods are designed to last only three months, after which mortgage servicers are supposed to either give homeowners a permanent modification or drop them from the program. According to a ProPublica analysis, about 475,000 homeowners have been in a trial modification for longer than three months.
Paul Kiel has much more.

A couple of key points on HAMP I've mentioned before:

  • When the HAMP program began, the requirements for putting a borrower in a trial program varied by servicer. Some servicers put anyone who answered the phone, and said they'd make a payment, in to a trial program. Other servicers required homeowners to provide some initial documentation of income, and make the first payment, before putting them in a trial program.

  • Although the HAMP trial program was supposed to last 3 months, the period was extended to 5 months - and then eventually to the end of January (no matter when the trial started).

    The January guidance from Treasury addressed both of the above points.
    Effective for all trial period plans with effective dates on or after June 1, 2010, a servicer may evaluate a borrower for HAMP only after the servicer receives the following documents, subsequently referred to as the “Initial Package”. The Initial Package includes:
  • Request for Modification and Affidavit (RMA) Form,
  • IRS Form 4506-T or 4506T-EZ, and
  • Evidence of Income
  • The trial period will start after the initial documents are received, a trial plan is sent to the borrower, and the borrower makes the initial payment.

    The second key component of the directive is how to handle all the current trial modifications. For the borrowers who have not made all of their payments, the directive requires the HAMP trial program to be canceled. For borrowers who have made payments, but are missing documentation, Treasury provides some additional guidelines.

    This suggests that there will be fewer trial modifications per month in the future (this is already happening, see graph below) and a surge of trial cancellations in February.

    HAMP This is graph is from the January Treasury report. This shows the cumulative HAMP trial programs started.

    Notice that the pace of new trial modifications has slowed sharply from over 150,000 in September to just over 80,000 in January 2010. This is slowest pace since May 2009 and is probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers.