The Treasury defended the HAMP program Wednesday. "...[M]ortgage modification programs include an inherent risk of homeowner default, given the difficult situations homeowners face when they seek assistance (like job loss). One of the policy challenges of designing a program like HAMP, particularly given the severity of the recent housing crisis, is giving as many struggling homeowners as possible the chance to keep their home while recognizing that not all will succeed," Mark McArdle,Acting Chief of Homeownership Preservation at the U.S. Department of the Treasury wrote in a post.
He noted that the Treasury has made changes to the program that have helped lower the re-default rates in later years. He also drew attention to studies by the Office of the Comptroller of the Currency that showed that HAMP modifications exhibited lower re-default rates than private modifications, reflecting "HAMP's emphasis on the affordability of monthly payments relative to the borrower's income, verification of income, and completion of a successful trial-payment period."
HAMP had taken steps to encourage principal reduction in order to meaningfully lower monthly payments and reduce negative equity for underwater borrowers. It is also reaching out to borrowers early in their delinquency stage to provide them help under HAMP.
"While re-default remains an unfortunate outcome for some borrowers, clearly without HAMP, national foreclosures rates would have been much higher and many borrowers would not have received the assistance they needed," he wrote.
Currently, private modifications far outpace HAMP modifications, though the program is credited with providing the industry with a template for loan modifications.
-- Written by Shanthi Bharatwaj in New York.