The U.S. Government Accountability Office (GAO) announced that a combination of errors including lack of guidelines and insufficient quality control limits by the Treasury resulted in program denials for potentially qualified homeowners.
Many participating mortgage lenders misunderstood the provisions involved with the qualification process. In turn many mortgage services implemented makeshift rules regarding qualification criteria and lacked the proper documentation required of HAMP.
The GAO interviewed ten participating mortgage lenders (accounting for 71 percent of HAMP funding) who attempted to follow the vague guidelines. Their findings show some of the biggest errors that plagued HAMP include:
- A 20 percent error rate in the calculation of borrower's income. The limit was set at three to five percent.
- Six out of the ten lenders did not properly test to see if they were meeting program compliance.
- Seven out of the ten lenders set their own criteria to determine if an owner was considered to be in loan default.
- Some providers charged fees prohibited by HAMP
History of Making Home Affordable Program
After the real estate bubble burst, home prices plummeted and homeowners started to default on their loans in droves, Congress developed the Troubled Asset Relief Program (TARP) to assist. The Treasury announced HAMP in March of 2009 and had a $75 billion budget to help an estimated four million homeowners.
Qualifications for HAMP include:
- Mortgages must have been secured before January 1, 2009
- Only mortgages for primary residences can qualify
- Mortgage debt cannot exceed $729,750
- Mortgage payments had to balloon or the homeowner has to prove a decrease in income since the initial loan was contracted
- Current mortgage payments had to exceed 31 percent of the homeowner's gross income
Current HAMP News
Fitch Ratings, a New York based credit-rating agency, released report information indicated that a sizable portion (approximately 75 percent) of borrowers who modified their mortgages through a government-sponsored program are on point to default on their loans. The high percentage has nothing to do with HAMP design or the detected glitches. Those at risk of default only have themselves to blame, as they did nothing to change the behavior that got them in trouble in the first place.
Even though problems with HAMP have been detected, the treasury has yet to determine a way to rectify the situation. One solution they are implementing is encouraging the mortgage lenders involved in the program to contact to homeowners and give it another shot.
