A recently released government report has found that the federal Home Affordable Modification Program implemented by the Obama Administration rejects nearly three-quarters of the people that apply to the program. The Home Affordable Modification Program is designed to help homeowners at risk of foreclosure reduce their monthly mortgage payments so they can stay in their homes.
According to Treasury Department data provided to the Special Inspector General for the Troubled Asset Relief Program, 5.7 million homeowners have applied for assistance through the program since it began in 2009. Four million of those applicants have had their HAMP applications rejected.
Once applicants apply for a modification, a mortgage servicer reviews the applicant’s information to see whether they qualify to participate in the program. The homeowner must live in the home in question and have taken the mortgage out before 2009, as well as meet financial guidelines.
If the servicer’s calculation indicates that they will receive more money over time by lowering the applicant’s mortgage payment, the application is supposed to be approved under Treasury guidelines, which mortgage servicers are required to follow. The Treasury Department pays mortgage servicers for each loan they modify.
When the HAMP initiative was announced, $75 billion in funding was earmarked for the program. That amount was later reduced to $29.8 billion. Today, about $18.5 billion remains unspent due to the high rejection rate of applicants.
It was originally estimated that the program would help 3 to 4 million struggling homeowners avoid foreclosure. Only 1.7 million have been able to make use of the program so far.
The high rejection rate has raised questions about whether the eligibility requirements to participate in HAMP are too stringent. The Treasury Department has recently made modifications to the program to make it easier for homeowners to qualify, including reducing documentation requirements and expanding the eligibility criteria.
Some critics of the program also wonder whether mortgage servicers are wrongly denying eligible HAMP applications. The mortgage servicers claim that homeowner income issues are behind the high rejection rate.
However, the report states that the mortgage servicers have made considerable mistakes when recording homeowner income. The report goes on to say that “eligible homeowners may have been, and may continue to be, denied a chance to get into HAMP through no fault of their own.”