On the House: Problems with loan programs

Posted: September 09, 2012

Mention of HAMP, which stands for Home Affordable Modification Program, brings in a flood of e-mail and telephone calls.

These correspondents fall into three categories:

Struggling homeowners who failed in the effort to get their loans modified, after many attempts and many months.

Those who have never heard of HAMP and want information on how to apply.

Readers who pay their mortgages each month and cannot fathom why they have to support those who do not.

HAMP and its counterpart, the Home Affordable Refinancing Program (HARP), have been around since 2009, part of the Obama administration's efforts to keep millions of homeowners out of foreclosure. How successful these programs have been depends on whom you ask.

The administration issues a monthly "housing scorecard" chock-full of data, much of it repeated from other sources.

The most important are the numbers of loans modified through the government's program versus Hope Now, a public/private effort dominated by lenders who insist their own mortgage-modification efforts are more successful.

July's numbers back the lenders. The government program has resulted in about one million permanent modifications since HAMP started. Hope Now completed almost three million modifications as of May, with an average of 45,000 each month.

HAMP and HARP, which had 1.3 million refis as of July, were rushed into place untested, and have required retooling from the start. Both programs require voluntary cooperation of lenders and mortgage servicers, who are compensated for their efforts.

HAMP was expected ultimately to help between two million and three million homeowners avert foreclosure through loan modification, and HARP was expected to spur four million to five million refinancings.

It is unlikely either target will be reached, although there also were those who didn't expect the numbers to reach July's levels.

President Obama maintains that HAMP is underutilized, but from what readers continue to tell me, getting a loan modified requires (pardon the pun) an act of Congress, and you know that crowd.

Hiding amid the spam offering low-cost car-repair warranties and music CDs from Istanbul when I returned from vacation a few weeks ago was an e-mail from Gerald Pierri of Exton citing an example of the programs' problems.

I last wrote about Pierri in 2010, when he was counseling his son, Vincent, in Boston about interest rates and affordability.

It's Pierri's daughter in Tampa, Fla., this time. In September 2010, she and her husband qualified for a 30-year HARP with a 5.125 percent interest rate, 1.5 percentage points higher than the prevailing rate "because of the additional risk the bank was taking on as the loan-to-value ratio was 125 percent."

They'd never missed a payment, and were current "then and now," Pierri said.

Taking Obama at his word, reinforced by interest rates below 4 percent, Pierri contacted his daughter's bank to see if she qualified for a new HARP loan.

"I was told that because she had refinanced with a Freddie Mac loan after June 2009 she was not eligible for a new HARP loan," he said.

The bottom line: Pierri's daughter is paying an interest rate about 1.5 percentage points higher than people applying for a HARP loan today.

"She and others like her are being penalized for taking the initiative to do something about their loan in the first place," he said.

Sadly, as millions of borrowers can attest, there is little to be done to undo this.

It is, as Pierri observed, "an example of government bureaucracy that never really seems to get it" or is even aware of the "unintended consequences."

Contact Alan J. Heavens at 215-854-2472, aheavens@phillynews.com or @alheavens at Twitter.

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