Using HAMP Borrowers Flaws HAFA Success: Servicing Panel

There is a fundamental flaw to the Making Home Affordable Foreclosure Alternatives (HAFA) program that will keep the program from reaching its full potential, panelists told the audience today in Dallas at the Source Media Mortgage Servicing Conference. That flaw is that the program requires the borrower exhaust the Making Home Affordable Modification Program (HAMP) before proceeding to a HAFA short sale. That strategy takes borrowers who are committed to staying in their homes and transfers the loss mitigation strategies from a workout plan to vacancy, said Robert Hunter, a vice president of Amherst Securities. “I think HAFA is a lot of press about nothing at the end of the day,” he said. Average borrowers trying to save their homes aren’t going to call a real estate agent the day after they’re told no. They’re going to try to wait it out, especially if they’re unemployed and trying to get a new job, said Bryan Bolton, senior vice president of loss mitigation at the mortgage division of Citigroup (C). HAMP is seeing some success in helping borrowers, Bolton told the audience, adding it’s made the public more aware of alternatives to foreclosure. “HAMP gets a bad rap,” Bolton said, adding at a high level, the program works because it puts some standardization on modifications for the industry. The panel session, titled “How to Stop the Bleeding — Or What to do About Defaults” also covered the topic of principle forgiveness. Barbara Peterson, assistant vice president and assistant manager of default servicing at M&I Corp. (MI), is vehemently opposed to principle forgiveness, especially for borrowers who are underwater on their mortgages, but can still afford their monthly payments. “Loss of equity is not a hardship. It’s unfortunate, but it’s not a hardship,” Peterson said. “You’re just going to have to ride it out. You can afford the payment.” M&I does not participate in HAMP, and as such, will not participate in HAFA. The bank instead uses its own in-house modification program for borrowers with true, documented hardships. So far, the program’s resulted in a recidivism rate that’s less than 20%. That rate includes not just owner-occupied properties, but also rental homes and pieces of undeveloped land, as long as the borrower has a hardship the bank can verify. For those looking for a modification with the threat of strategic default, Peterson has no sympathy. “If you want to default and ruin your credit, there’s nothing I can do to stop you, but if you don’t have a hardship, I can’t help you,” she said. A change in the modification environment is the source of borrower hardship. Previously, borrowers with exotic mortgage products were the first wave to default, now lenders are seeing more borrowers that are unemployed looking for mortgage assistance. That said, the panel’s moderator, Diane Pendley, a Fitch Ratings managing director, presented data that showed prime mortgage defaults seem to have capped at 10%. In addition, the most recent data shows that subprime defaults are also down 0.5%. It could be simply the modifications are starting to happening, or income tax returns showing up and being used for payments, she said. “It’s definitely a good sign and we’ll take it.” Write to Austin Kilgore. The author held no relevant investments.

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