Today, the House Financial Services Committee's Subcommittee on Housing and Community Opportunity held a hearing entitled, “Progress of the Making Home Affordable Program: What are the Outcomes for Homeowners and What Are the Obstacles to Success?” The goal of the hearing was to focus on the successes and challenges of the Making Home Affordable Program, (“MHA Program”) six months after its implementation. The MHA Program was meant to assist three to four million homeowners, but, to date, only 15% of the 2.7 million eligible homeowners have received help.
Michael S. Barr, Assistant Secretary for Financial Institutions, U.S. Department of Treasury
David Stevens, Assistant Secretary for Housing / Federal Housing Commissioner, U.S. Department of Housing and Urban Development
Mark A, Calabria, Director, Financial Regulation Studies, Cato Institute
Mary Coffin, Executive Vice President, Well Fargo Home Mortgage Servicing
Alys Cohen, Staff Attorney, National Consumer Law Center
Jack Schakett, Mortgage Executive, Credit Loss Mitigation Strategies, Bank of America
Molly Sheehan, Senior Vice President, Chase Home Lending, JPMorgan Chase
Paul S. Willen, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston
Mr. Barr highlighted the successes of recent foreclosure mitigation programs, but also acknowledged areas where Treasury is looking to improve, including taking additional steps to expedite program implementation and increase take-up; implementing the Foreclosures Alternatives Program and strengthening the HOPE for Homeowners refinancing program. He stated that these programs, along with the Second Lien Program and Home Price Decline Protections Incentives, are “designed to increase the effectiveness and take-up of the first lien modification program.”
Mr. Stevens discussed the new approaches that the Obama Administration is exploring to stabilize the U.S. housing market. HUD is working with Treasury and other agencies to conduct a high-level review of the MHA Program. Mr. Stevens stated that “[a]lthough much of the spotlight has been on the single family home mortgage foreclosures, there is increasing evidence that there are also material and growing challenges in the multifamily mortgage sector, which could have negative consequences for tenants including specific concerns stemming from under investment in overleveraged buildings as well as growing delinquencies.”
In his comments, Dr. Calabria stated that the current foreclosure relief efforts have been unsuccessful because “they have misidentified the underlying cause of mortgage default.” He believes that “exploding” ARMs and predatory lending that drove current foreclosures are not the problem. In his view “negative equity driven by house prices declines coupled with adverse income shocks” are the main sources of defaults on primary residences. He asserted that any successful plan would have to address negative equity and reductions in earnings.
Ms. Coffin stated that the successes that Wells Fargo has achieved “would not have been achievable without the continued collaborative public and private sector efforts to inform customers of their options and the introduction of the new Home Affordable Modification Programs.”
Mr. Cohen, testifying on behalf of the National Consumer Law Center and the National Association of Consumer Advocates, stated that “[s]everal months into the Home Affordable Modification Program ... homeowners and their advocates report that the program is not providing a sufficient number of loan modifications to homeowners, the modifications offered often do not meet the guidelines of the program, and the program itself still presents serious barriers to mass loan modifications." He went on to state that, “even if [the] Home Affordable Modification Program (“’HAMP”) operated at its full capacity as envisioned by Treasury officials, HAMP's loan modifications still would be substantially outpaced by foreclosures, and the modifications themselves lack the mandated principal reductions that many believe are necessary to stem the foreclosure tide."
In his comments, Mr. Schakett stated that unemployment, lack of interest in remaining in the property and other eligibility issues are challenges for qualifying for a HAMP modification. To address this issue, Bank of America has begun “exploring with the Administration methods of allowing responsible unemployed borrowers to stay in their homes. Such relief could include forbearance and temporary rate relief.”
Mr. Willen cited three aspects of the foreclosure crisis that should be taken into account in designing an effective foreclosure prevention program: (i) addressing the problem of unemployed borrowers; (ii) understanding that it is unlikely that a “modest financial nudge to servicers will lead millions of modifications that will help millions of worthy borrowers”; and (iii) policymakers “need to exercise care in designing foreclosure prevention policies that provide the right incentive to borrowers and servicers.”