House GOP Aims to Put Foreclosure Mitigation Programs Underwater

The House Financial Services Committee (HFSC) appears primed to strike the first blow against the  administration’s nearly two-year effort to mitigate U.S. home foreclosures through its signature Home Affordable Modification Program (HAMP). During a markup this morning, Chairman Spencer Bachus (R-AL) said a final committee vote will occur next week to terminate the program he argues is doing “more harm than good for struggling homeowners.”

Created in March of 2020, HAMP aims to assist struggling homeowners avoid foreclosure by providing federal incentives for borrowers, servicers and investors to modify delinquent home loans through interest rate reductions, mortgage term extensions, and temporary principal forbearance. Although the administration’s initial goal was to permanently modify three to four million home loans, HAMP has led to only 600,000 permanent modifications. According to newly-released Treasury statistics, between April 2020 and the end of January 2019, 1.5 million HAMP trial modifications were initiated – meaning that well over half of all initial modifications have resulted in failure.

Although HAMP was originally provided nearly 30 billion under the Troubled Asset Relief Program (TARP), as of February, only 1.04 billion in incentive payments have been disbursed to mortgage servicers under HAMP, according to the Congressional Research Service.

Critics of HAMP often cite an October 2010 report from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) asserting that failed loan modifications under the program have led to higher outstanding principal, less home equity, and worse credit score for some participating troubled borrowers. Critics have also noted that no enforcement mechanisms are in place for servicers who violate the HAMP guidelines, largely due to the program’s voluntary nature.

Viewed by some observers as a tacit acknowledgement by the administration that a voluntary approach to home loan modifications has proven to be less effective in practice, federal and state officials, as part of a pending legal settlement with mortgage servicers accused of abusive foreclosure practices, is supposedly considering a settlement that will force individual mortgage servicing firms to modify a specified number of home loans for underwater borrowers or contribute a specified amount of funding for home loan modifications.

However, during Treasury Secretary Timothy Geithner’s testimony before the HFSC on Tuesday, Geithner warned that the U.S. housing market remains in a “very difficult state” and said the elimination of HAMP would “cause a huge amount of damage” to the broader housing market.

During the markup on Thursday, the HFSC considered and passed bills that will terminate two other administration housing assistance initiatives: the FHA Refinance Program and the Emergency Homeowner Relief Program (H.R. 830, the FHA Refinance Program Termination Act, and H.R. 836, the Emergency Mortgage Relief Program Termination Act). House leadership announced that both measures will be considered on the floor next week.

Markup and votes on bills to terminate HAMP, along with the Neighborhood Stabilization Program will occur sometime next week (H.R. 839, the HAMP Termination Act , and H.R. 861, the NSP Termination Act).

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