Private Mortgage Modifications Overshadow Government Program

If you follow the struggles of the government's "HAMP" foreclosure prevention effort, then you might think modifying mortgages is a lost cause. Last month, five times as many homeowners dropped out of HAMP than obtained permanent modifications. Its numbers of new trials and permanent modifications both declined in May. But there might be a reason why it's doing so badly: more attractive private servicer modification programs are crowding out the need for government assistance.

The House Committee for Oversight and Government Reform held another hearing on HAMP on Thursday. Representatives from five major mortgage servicers testified. In one part of the hearing, Rep. Jim Jordan (R-OH) asked what portion of their total mortgage modifications were permanent HAMP modifications (see bottom of post for video clip). The results weren't pretty:

HAMP oversight stats 2010-06.bmp

As you can see, the vast majority of the time borrowers are choosing private modification programs over HAMP. Jordan followed up, asking whether there were many borrowers who qualified for HAMP but would not their program. All panelists said that this was a rare situation. In fact, some indicated that they often successfully modify mortgages for borrowers who didn't even qualify for HAMP. Here are a few choice responses.

Sanjiv Das, Chief Executive Officer, CitiMortgage, Inc.:

"Let's put it this way, for the people who fell out of HAMP, we were able to save about 15% more."

Michael J. Heid, Co-President, Wells Fargo Home Mortgage:

"Somewhere between 70 and 80 percent of the HAMP cancellations are resulting in some other form of saving the home or avoiding foreclosure."

Jordan drew the conclusion that HAMP was probably unnecessary to begin with. If almost all of the strikingly few borrowers that the program has helped would have qualified for private modifications anyway, what was the point? That doesn't sound like $75 billion well-spent.

While that line of reasoning is appears sensible, there is another side to the argument. The government's insistence on mortgage modification and creation of HAMP might have driven private programs to succeed as well. Once these servicers realized they would be forced to participate in HAMP, due to their acceptance of bailout money, they devised their own proprietary modification programs instead. In this case, it's possible that HAMP's existence helped to create the private mortgage modification market.

Even if it did, however, $75 billion is a pretty big price tag for nudging along a private sector that may have ended up in the same place anyway. The statistics above don't speak very favorably about HAMP's design either. The government program provides carrots to servicers, investors, and borrowers for their participation, but still produces far worse results than private programs without any such incentives.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus


How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.


Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.


The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.


Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.


Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses


Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In