The goal of the first-lien mortgage modification program is to reduce  struggling homeowners’ mortgage payments to more affordable levels— specifically to 31 percent of the borrower’s income. Most of the disbursements to date have been made  for the first-lien modification program. In addition to first-lien modifications, Treasury has announced a number  of TARP-funded housing programs, including those for modifying second  liens held by borrowers with first-lien modifications under HAMP,  reducing principal, offering temporary forbearance for unemployed  borrowers, and providing alternatives to foreclosure (see table 1). Servicers Have Been Inconsistent in Soliciting and Evaluating HAMP Borrowers and More Treasury Action Is Needed to Ensure Equitable Treatment of Borrowers with Similar Circumstances

Although one of Treasury’s stated goals for HAMP is to standardize the  loan modification process across the servicing industry, in our June 2010  report, we identified several inconsistencies in the way servicers treated  borrowers under HAMP that could lead to inequitable treatment of  similarly situated borrowers. We also noted that many borrowers had complained they did not receive  timely responses to their HAMP applications and had difficulty obtaining  information about the program. In addition, Treasury has not clearly informed borrowers that they can use  the HOPE Hotline to raise concerns about servicers’ handling of HAMP  loan modifications and to challenge potentially incorrect denials, likely  limiting the number of borrowers who have used the hotline for these  purposes. In our June 2010 report, we  recommended that Treasury finalize and expeditiously issue consequences  for servicers who do not comply with HAMP requirements. We made eight  recommendations to improve the transparency and accountability of  HAMP in June 2010. Treasury stated that it intended to implement some of  the recommendations, but little action has been taken to date. Implementation Challenges Have Affected the Progress of Treasury’s Newer Housing Programs

The implementation of Treasury’s 2MP, HAFA, and PRA programs has  been slow, and limited activity has been reported to date. All six of the large MHA  servicers we spoke with identified extensive program requirements as  reasons for the slow implementation of HAFA, including the initial  requirement that applicants first be evaluated for a HAMP first-lien  modification. We recommended in June 2010 that Treasury  report activity under PRA, including the extent to which servicers  determined that principal reduction was beneficial to mortgage investors  but did not offer it, to ensure transparency in the implementation of this  program. In addition, we found that Treasury could do more to build on the lessons  learned from its first-lien modification program. As a result, servicers’ ability to  effectively offer troubled homeowners second-lien modifications,  foreclosure alternatives, and principal reductions is unclear. HAMP Borrowers Shared Several Characteristics, Including Reduced Income; Early Data Indicate that Borrowers Who Redefaulted from Permanent Modifications Were Further Into Delinquency

Our analysis of HAMP data for borrowers in trial and permanent  modifications indicated that over half of borrowers cited curtailed income,  such as reduced pay, as the primary reason for needing to lower their  mortgage payments (56 percent of borrowers in active modifications and  53 percent in trial modifications). Borrowers who were either canceled from a trial modification or  redefaulted from a permanent one shared several of these characteristics,  including having high debt levels and being “underwater” on their  mortgages. In addition, borrowers  who were 60 or 90 days or more delinquent at the time of their trial  modifications were 6 and 9 percent more likely to have trial modifications  canceled, respectively, compared with borrowers who were not yet  delinquent at the time of their trial modifications. Most Borrowers Denied or Canceled from Trial Modifications Have Avoided Foreclosure to Date, but Limits to Treasury’s Data Make Understanding Their Outcomes Difficult

We requested data from six servicers on the outcomes of borrowers who  (1) were denied a HAMP trial modification, (2) had their trial modification  canceled, or (3) redefaulted from a HAMP permanent modification. We also looked at data that Treasury had begun reporting on the  disposition paths of borrowers who were denied or canceled from HAMP  trial modifications. However, weaknesses in how Treasury requires  servicers to report data make it difficult to understand the current status  of these borrowers. Without  accurate reporting of borrower outcomes, Treasury cannot know the  actual extent to which borrowers who are denied, canceled, or redefaulted  from HAMP are helped by other programs or evaluate the need for further  action to assist this group of homeowners.
Why GAO Did This Study

This testimony discusses our work on the Making Home Affordable (MHA) program, including the Home Affordable Modification Program (HAMP). Since the Department of the Treasury (Treasury) first announced the framework for its MHA program over 2 years ago, the number of homeowners facing potential foreclosure has remained at historically high levels. HAMP, the key component of MHA, provides financial incentives to servicers and mortgage holders/investors to offer modifications on first-lien mortgages. The modifications are intended to reduce borrowers' monthly mortgage payments to affordable levels to help these homeowners avoid foreclosure and keep their homes. Since HAMP's inception, concerns have been raised that the program is not reaching the expected number of homeowners. In two prior reports, we looked at the implementation of the HAMP first-lien modification program, noted that Treasury faced challenges in implementing it, and made several recommendations intended to address these challenges. In addition, our ongoing work examines the extent to which additional MHA programs have been successful at reaching struggling homeowners, the characteristics of homeowners who have been assisted by the HAMP first-lien modification program, and the outcomes for borrowers who do not complete HAMP trial or permanent modifications. These programs include the Second-Lien Modification Program (2MP) for those whose first liens have been modified under HAMP, the Home Affordable Foreclosure Alternatives (HAFA) program for those who are not successful in HAMP modifications, and the Principal Reduction Alternatives (PRA) program for borrowers who owe more on their mortgages than the value of their homes. This testimony is based on the report on HAMP that we issued in June 2010, as well as on preliminary observations from our ongoing work. Specifically, this statement focuses on (1) the extent to which HAMP servicers have treated borrowers consistently and the actions that Treasury and its financial agents have taken to ensure consistent treatment; (2) the status of Treasury's second-lien modification, foreclosure alternatives, and principal reduction programs; (3) the characteristics of borrowers who received HAMP modifications; and (4) outcomes for borrowers who are denied or fall out of HAMP trial or permanent first-lien modifications.

What GAO Found

In June 2010, we reported on several inconsistencies in the way servicers treated borrowers under HAMP that could lead to inequitable treatment of similarly situated borrowers. These inconsistencies involved how servicers solicited borrowers for the program, how they evaluated borrowers who were not yet 60 days delinquent on their mortgage payments, and how they handled borrower complaints. In addition, we noted that while Treasury had taken some steps to ensure servicer compliance with program guidance, it had not yet finalized consequences for servicer noncompliance. We made eight recommendations to improve the transparency and accountability of HAMP in June 2010. Treasury stated that it intended to implement some of the recommendations, but little action has been taken to date. Further, as part of our ongoing work, we identified several implementation challenges that had slowed implementation of newer MHA programs, specifically 2MP, HAFA, and the Principal Reduction Alternative (PRA). For example, we found that servicers experienced difficulties in using a required database to identify borrowers who might be eligible for 2MP, contributing to a slow start for this program. We found that borrowers who were in HAMP trial or permanent modifications tended to share certain characteristics, such as reduced income and having high debt levels, and that those who were canceled from trial modifications or redefaulted from permanent modifications tended to be further into delinquency at the time of their modifications. Lastly, we found that many borrowers who were denied or fell out of HAMP modifications had been able to avoid foreclosure to date. But weaknesses in how Treasury reports the disposition paths, or outcomes, for these borrowers make it difficult to understand exactly what has happened to these homeowners.