The future of foreclosure relief after the end of Obama’s signature mortgage relief effort
Housing counselors and advocates worked late into the evening on Dec. 30, 2016, helping homeowners meet the midnight deadline to apply for the Obama administration’s signature foreclosure crisis era mortgage relief program.
Although it is not immediately clear how many homeowners beat the rush, what is clear is that the future of foreclosure assistance for homeowners looks much more fragmented as lenders and regulatory agencies announce new efforts and guidelines for filling the void being left by the end of Making Home Affordable and its Home Affordable Modification Program.
The programs themselves, however beneficial, were far from perfect.
As The Washington Post reported recently, HAMP failed to meet its ambitious stated goal of helping up to 4 million borrowers, falling short by about 2.4 million by the end of 2016. The program was also criticized for its complexity by lenders and by advocates who claimed lenders lost paperwork or mismanaged cases. Many homeowners had to seek the help of housing counselors and legal advocates to get their applications through.
The U.S. Department of Treasury also found that the large mortgage services receiving billions of dollars for participating in the program had flouted its rules by miscalculating homeowners’ income, wrongfully denying applications and more, according to an October 2016 report by the Office of the Special Inspector General of the Troubled Asset Relief Program, the $700 billion taxpayer bailout.
Despite the program’s deficiencies, Making Home Affordable played a crucial role in helping to standardize best practices in loss mitigation across the industry. Before 2009 and the creation of these programs, “there was no standard approach among mortgage servicers or investors to assist homeowners who were making payments, but were at risk of becoming delinquent due to a financial hardship,” according to a white paper released in July by the U.S. Department of Treasury and the U.S. Department of Housing and Urban Development. Some housing counselors have called the period before HAMP and MHA were introduced as the “Wild West” of mortgage modifications.
So what happens now? For much of 2016, lenders and federal regulators were busy charting the future.
In their white paper in July, the U.S. Department of Treasury, the Federal Housing Finance Agency, and U.S. Department of Housing and Urban Development identified five core principles for any effort to replace the Home Affordable Modification Program: Consumers should be able to easily access options; plans should be affordable; they should be sustainable; all terms should be made transparent; and there should be sufficient oversight and accountability for the process. The Consumer Financial Protection Bureau also agrees with these principles, highlighting their mortgage servicing rules as a way to keep banks in check.
In December, Fannie and Freddie Mac, taking their cue from that white paper, announced the “Flex Modification,” which would give eligible borrowers a 20% payment reduction, and would borrow from the Obama administration’s program.
The Mortgage Bankers Association, meanwhile, has been backing what it has called the “One Mod,” which would require less documentation and little to no underwriting. This could be a much simpler option for homeowners and lenders. It also offers what the association calls “deep payment relief” through a six-step waterfall proposal.
In spite of industry-wide improvements in mortgage modification standards and new options, in the absence of HAMP, homeowners will likely face uncertainty and confusion about what to do when they need help with their mortgages.
This means that housing counselors and legal advocates will be needed more than ever to help navigate the new options and processes, assess affordability, and work with servicers to get homeowners the financial relief they need to keep their homes.
After all, applying for HAMP when it existed often required the help of a counselor, as Christopher Pinto told the Journal News in a recent story.
“I tried on my own, and it didn’t work,” said the 60-year-old homeowner from White Plains, who got his mortgage payment reduced to $1,100 through the program with the assistance of a local housing organization. “I wouldn’t have been able to do it without them.”