TARP Audit: Housing Recipients Re-Defaulting in Alarming Numbers

Wednesday, 24 Jul 2013 01:27 PM

By Sandy Fitzgerald

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Nearly one-third of the homeowners who got help through the government's main foreclosure prevention program are defaulting again on their mortgages, according to a government watchdog's report.

The Home Affordable Modification Program (HAMP) has worked on 1.2 million mortgage modifications since it started four years ago. Of those, more than 306,000 borrowers have defaulted again on their loans, and another 88,000 are at risk as well, reports CNN.

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The Special Inspector for the Troubled Asset Relief Program (SIGTARP), which conducted the review, said homeowners are also more likely to default again on the modified loans the longer they stay in the program, with 46 percent of those involved in the program since 2009 defaulting on their loans again.

The re-defaults have cost taxpayers some $815 million, according to SIGTARP. So far, the Treasury Department has allocated $19.1 billion to HAMP, and $4.4 billion has been spent. The program was recently extended for another two years, until the end of 2015.

The Obama administration's Treasury Department created HAMP to help borrowers avoid foreclosure by making their house payments more affordable through a combination of reduced mortgage principals and interest rates and extended loan terms.

But borrowers are dropping out of the program as they default again on their loans, and SIGTARP Director Christy Romero said Treasury needs to research why so many people drop out of a program that kept their homes safe from foreclosure.

People who default are following "clear patterns," the SIGTARP report found. For example, homeowners most likely to default again are the ones who got the smallest reductions in their mortgages, who were still "underwater" on their mortgages, or who had subprime credit scores and high debt when their mortgages were modified.

A Treasury official said Tuesday that the department is researching HAMP program modifications and ways to improve the new default rates, noting that most of the defaults were coming from modifications that were approved for high-risk homeowners, and completed during the foreclosure crisis.

"It must be remembered that mortgage modification programs include an inherent risk of homeowner default, given the difficult situations homeowners face when they seek assistance (like job loss)," said Treasury Department spokesman Mark McArdle. " One of the policy challenges of designing a program like HAMP, particularly given the severity of the recent housing crisis, is giving as many struggling homeowners as possible the chance to keep their home while recognizing that not all will succeed."

SIGTARP suggested that the Treasury Department start working with mortgage companies to create a system that reaches out to at-risk homeowners before they default. Treasury Department Assistant Secretary Timothy Massad, in a letter to Romero, said the department is taking several steps tp curb the re-default rate, and HAMP still remains the best option for people in danger of losing their homes.

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