The Treasury Department announced its April figures for the Home Affordable Modification Program (HAMP) on Monday, revealing a surprising statistic. Nearly twice as many homeowners with loan modifications through the program dropped out in April than had done so in March.

Overall, over 299,000 applicants had received permanent home loan modifications through the program as of April. That number accounts for about 25 percent of those who started the process since March of last year. The average reduction in the mortgage payment for those who completed the program and obtained a permanent modification was $516, or 36 percent.

The rate of homeowners dropping out before obtaining a modification - starting the process but either not being able to negotiate a modification at all or failing to make the first three payments on time - rose abruptly from approximately 155,000 in March to about 277,000 in April.

Among those who succeeded in negotiating a modification and made the first three payments, 1.3 percent dropped out, most often because they defaulted on the modified loan.

The total number of permanent mortgage modifications does continue to grow overall. Nearly 300,000 homeowners have completed the program, an increase of 68,000 or almost 13 percent over March.

Changes in HAMP Could Promote Short Sales for Underwater Mortgages

The program has been plagued with administrative challenges in addition to some reluctance on the part of mortgage lenders to participate in debt negotiation. The Treasury Department has instituted some new rules to make obtaining the information required to process loan modifications more automatic.

Two options for homeowners with underwater mortgages are short sales, where the lender agrees to allow the homeowner to sell the home for less than what is owed, and deeds in lieu of foreclosure, where the borrower and lender agree to cancel the mortgage in return for the deed.

In order to encourage more short sales, the administration's Home Affordable Foreclosure Alternatives (HAFA) program provides $3,000 in relocation expenses grant for homeowners completing short sales or deeds in lieu of foreclosure transactions with their lenders.

In the HAMP program, new requirements were put in place to encourage lenders to agree to short sales. Now, mortgage companies will have to set their minimum price before the house is listed for sale and, if that price is met, they must accept the deal. In the past, lenders have put off calculating their minimum price until they received an offer, which resulted in long delays.

Related Resources

  • "Dropouts rise in gov't loan modification program" (Associated Press, May 18, 2010)
  • "Making Home Affordable Program: Servicer Performance Report Through April 2010" (U.S. Departments of Treasury and Housing and Urban Development, May 17, 2010)
  • "Home Affordable Foreclosure Alternatives (HAFA) Program" (MakingHomeAffordable.gov)