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In March, the White House launched its $75 billion Home Affordable Modification program (HAMP) to get struggling homeowners refinanced into new loans with lower monthly payments to slow down the wave of foreclosures hitting the housing market. Since that time, we have been given incremental updates on the plan, which now has more than 650,000 homeowners enrolled in a three month trial for the program.

However, the numbers we haven't seen yet, and which are supposed to begin being published in December, are the number of borrowers who have passed the trial period and been enrolled in the full program. Preliminary reports of the program indicate that the number of borrowers who have been given the green light for the full program numbers is just in the tens of thousands. Initial feedback from mortgage servicers indicates that roughly 30% of trial participants may go into the full program, although it is too early to say. The Department of Housing and Urban Development expects roughly 375,000 borrowers to be in the full program by the end of the year. Nevertheless, foreclosures are still running at a rate of more than 300,000 per month and are expected to hit new records until the middle of next year.

Let's face it, the mortgage plan has not been the success that the White House, or the nation in general, had hoped it would be. The fact is there are many intricacies of the program, and there are several ways for the trial programs to go wrong. One issue is competence of the lenders in general, who are having a difficult time coordinating all of the mortgages and responding to all of the borrowers' inquiries and paperwork. In addition, the plan requires homeowners to give regular updates and several forms of paperwork, often times with vague instructions, and the homeowners become confused and fail to provide the required information. Furthermore, lenders have no obligation to enroll borrowers in the full program if the "net value" of the loans is deemed less than if the lender went ahead with the foreclosure process. Meanwhile, a large number of the borrowers are falling behind on payments anyway, despite receiving aid. With so many potential cracks for homeowners to fall through, it's no wonder the program has been subpar.

Seeing the program's failures, the Obama administration is unhappy and has issued some new rules and guidelines for the program, and in general the blame has been pushed onto the lenders. The focus of the new rules is on accountability of the lenders. It seems harsh to issue a plan with so many holes and then to blame the lenders for trying to carry it out. The plan was designed to put money in the lenders' pockets anyway ($1,000 reward per loan modified plus a more profitable alternative to foreclosure) so one would naturally expect cooperation. Nevertheless, lenders are now having the HAMP program forced upon them and the responsibility, accountability and blame is in their hands.

Firstly, the lenders must submit schedules for each loan including their plans for either enrolling or denying the borrowers in trial. Secondly, representatives from the Treasury and Fannie Mae (FNM) are being assigned as "liaisons" for mortgage servicers. These representatives will monitor each servicer on a daily basis and report the results to the administration. Finally, if servicers do not perform duties as specified, they will be subject to punishment which may entail fines or sanctions. In December, the Treasury plans to publish a progress report on the major lenders and publicly shame those that aren't helping enough.

In the end, I would not expect the new measures to make much of a difference. The fact is that the HAMP program has a narrow pool of eligible borrowers to begin with. Servicers already have a $1,000 incentive for each loan that they modify and enroll into the full program, so they already have a reason to get the trials converted. Like most government programs, though, paperwork, confusion and inadequate resources are getting in the way.

Meanwhile, the plan is simply not strong enough to make a large impact on a massive foreclosure problem. Perhaps the HAMP program would have been an excellent preventative measure a year or two ago when subprime ARMs and other faulty mortgages were the crux of the problem. However the main problem now is, simply put, the recession. Unemployment is still on the rise and hundreds of thousands of workers are losing their jobs each month. Homeowners cannot make payments after their jobs are lost or their hours are reduced, no matter how much their mortgages are modified.

Source: HAMP: Obama Turns Up Heat on Lenders