HAMP vs. HARP: a tale of two government programs
The Home Affordable Refinance Program (HAMP) and the Home Affordable Refinance Program (HARP) are federal responses to the housing crash, with HARP set up to help underwater and nearly underwater homeowners refinance their mortgages, while HAMP was designed to aide homeowners in danger of foreclosing. Both programs are part of the Making Home Affordable Program which was created under the Financial Stability Act of 2009.
The two have performed dramatically differently, and for two primary reasons: original goals set, and the conditions under which each program is offered to homeowners. HARP is performing well because homeowners cannot be late on payments to qualify, therefore they are typically more credit worthy and/or stable, and the government originally said the program would help one million homeowners.
Contrast that with HAMP which is a last ditch effort for struggling homeowners on the verge of losing their homes – some due to issues like job loss or illness, others to banks that have unreasonably poor communication (misdirecting borrowers, losing documentation, and of course, pushing for a foreclosure without any humans reviewing accuracy of documents). The White House said this plan would help seven to eight million homeowners, so $75 billion was set aside to help reduce borrowers’ monthly payments to 31 percent of their current income.
Aside from the goals and structure of each program, the second version of HARP issues in 2012 allowed mortgage servicers to make big bucks on HARP, incentivizing one where no incentive directly exists for the other. Most coverage of these two programs continue to overlook the simple fact that you can usually follow the money to discover motives.
HARP “hits its stride”
E. Scott Reckard at the LA Times writes that HARP has hit its stride, as the program has helped nearly 1.1 million homeowners under the program last year alone, surpassing the original promise of one million for the duration. Additionally, the pace is accelerating as last year’s 1.1 million is more than the number of homeowners who received help under HARP in the previous three years combined.
“This is a program that has reached a lot of people — probably more underwater homeowners than anybody thought it would,” said Guy Cecala, publisher of Inside Mortgage Finance. “It is also one of the few programs that has rewarded people who have stayed current on their mortgages.”
The program has succeeded because it acted as a stopgap measure in a situation where homeowners that have paid on time couldn’t otherwise refinance.
HAMP remains an embarrassment
The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) watchdog group reported recently that HAMP participants are defaulting on their mortgages at an “alarming rate,” opining that the program has failed to ensure sustainability of the mortgage reductions given to participants.
SIGTARP notes that mortgages modified in the third quarter of 2009 are now defaulting at 46 percent, and as of the end of March 2013, over 312,000 program participants have defaulted.
“This is a significant problem,” Christy Romero, special inspector general for TARP told the Washington Post. “When homeowners fall out of these modifications, all of a sudden they’re facing huge mortgage payments. If they can’t afford it, they’re going to get foreclosed on.”
The Treasury does not require servicers to report why homeowners default, so they say they cannot offer specific reasons for the dramatic increase in default rates. The department claims the program has helped almost 6.5 million homeowners, but SIGTARP reports that fewer than one million people have received a permanent modification through HAMP.
The two numbers are quite different, because as we’ve long reported, the majority of applicants to HAMP rarely are offered permanent modifications, rather see only temporary modifications during the trial period of participation.
Moving forward
Politicians and economists don’t agree on the way forward – some say more government involvement must take place to help prop up the very slowly recovering, yet still injured sector, while others call for the programs to be abrogated permanently as they falsely prop up housing.
Housing is slowly seeing signs of improvement, so the pace of improvement will likely dictate whether the programs stay, go, or are altered, but during the current administration, it is highly unlikely that they will disappear, although some changes may be put into place so the history books don’t have to write off HAMP as a complete disaster as it is in its current form.
