Three Years Later, One Third of HAMP Loan-Mods are Redefaulting

Supposedly permanent loan modifications are defaulting at what the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) calls an “alarming rate”. The government’s Home Affordable Modification Program claimed that it would help between 3 and 4 million homeowners to avoid foreclosure via loan modifications. However, according to the SIGTARP quarterly report released last week, after four years of HAMP, only 862,279 homeowners are currently in an active permanent mortgage modification.

The low number of total modifications is not the only bad news about HAMP. As of the end of last month, over 312,000 homeowners have redefaulted on their HAMP modification. As SIGTARP notes, “For these homeowners, the HAMP permanent mortgage modification they received was not sustainable.”

The earliest HAMP permanent modifications, those negotiated in the third and fourth quarters of 2009, are defaulting at rates of 46% and 39% respectively. And HAMP modifications negotiated in 2010 are doing little better, redefaulting at rates of between 29% and 38%.

Loan modifications can work for some homeowners who are threatened with foreclosure, provided that they are negotiated properly to ensure that the homeowners will be able continue to afford the new payments. But loan modifications that eventually redefault often cost people their homes: the lost time spent on a modification doomed to fail means that there is no time left to investigate other options, and foreclosure is the result.

If you have redefaulted, you may be eligible for a new modification under HAMP Tier 2. HAMP 2 allows a second HAMP modification if there is a new hardship.

The Making Home Affordable Program was introduced in February, 2009. The HAMP Tier 2 program became effective June 1, 2012. Changes to the program have now been implemented in an effort to increase participation and the number of homeowners who are eligible in the hopes of preventing foreclosures.

The new guidelines fall under the title of HAMP (Home Affordable Modification Program) Tier 2, expanding the qualifications and deadlines to be eligible for a loan modification under HAMP or other relief available through Home Affordable Unemployment Program, the Home Affordable Foreclosure Alternatives Program or the Second Lien Modification Program. As set forth in Tier 1, HAMP Tier 2 also does not apply to mortgage loans through Fannie Mae or Freddie Mac or loans guaranteed by the Veterans Administration, the Department of Agriculture Rural Housing Service or the Federal Housing Administration, (FHA).

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