A report released by the special inspector general for the Troubled Asset Relief Program called into question the effectiveness of the government’s loan modification programs. One of the first programs introduced by the Obama administration was the Home Affordable Modification Program. The Treasury Department spearheaded the HAMP program, which provided $75 billion to help lenders ease the burden on overextended borrowers nationwide and stem the rate of foreclosures in hard hit markets like Florida and California.
Banks participating in the HAMP program used the money to reduce monthly payments for at-risk homeowners to no more than 31 percent of their income. Despite these loan modifications, many borrowers have still found themselves in default just a few years later. Those who signed up in the final two quarters of 2009 have default rates of 46 percent and 39 percent, respectively.
Though the Treasury Department cites statistics showing their loan modification programs are outperforming private industry alternatives, the results so far are still a disappointment according to the watchdog report. The program has been plagued by delays and criticized by homeowners for the pace of the reviews and industry watchdogs for a lack of transparency in the denial process.
However, some good news about the program also has surfaced. A leading lobbyist for homeowners mentioned that the default rate for these programs has decreased since principal reduction was included in the features in late 2010. Florida homeowners who are still worried about the possibility of default can speak with an attorney and find out if they can still benefit from these programs.
Source: Washington Post, “Homeowners defaulting in loan modification program, report says” Danielle Douglas, April 23, 2013