SIGTARP: Mortgage Servicers Have Wrongfully Terminated Homeowners Out of the HAMP Program

TARP’s major foreclosure prevention program, the Home Affordable Mortgage Program (“HAMP”), was created to provide sustainable and affordable mortgage assistance to homeowners at risk of foreclosure.1 Although this program is at a turning point in its lifecycle, mortgage servicers administering HAMP will continue to need strict oversight in upcoming years. While HAMP was already scheduled to stop accepting homeowner applications on December 31, 2016, Congress recently terminated HAMP as of that date, but protected homeowners’ ability to stay in HAMP and receive TARP-funded assistance for up to six years.2 To give homeowners in HAMP the best shot at keeping their homes, the greatest concern going forward should be helping the homeowners who are in HAMP to stay in HAMP for the full six years. Already, as of December 31, 2015, 507,359 homeowners with permanent HAMP modifications fell out of the program by missing three payments (referred to as “redefaulting”) – which is almost one out of every three homeowners in HAMP.3,i The harm to a homeowner falling out of HAMP is significant, as they are no longer eligible to receive TARP incentive and other benefits.ii According to a Treasury survey of HAMP servicers:4 • 23% of all homeowners who redefaulted out of HAMP moved into foreclosure, • 12% of redefaulted homeowners lost their homes through a short sale or deedin- lieu of foreclosure, and • 28% of redefaulted homeowners received an alternative modification, usually a private sector modification that is less advantageous than a HAMP modification.iii Given the high percentage of homeowners falling out of HAMP and known problems with servicers not following HAMP rules, in October 2013, SIGTARP recommended that Treasury research and analyze whether, and to what extent, the conduct of HAMP mortgage servicers contributed to homeowners redefaulting on HAMP permanent mortgage modifications.iv Although Treasury has not conducted a full analysis, Treasury has partially implemented SIGTARP’s recommendation, and reviews samples of 100 homeowners who had redefaulted out of HAMP at each of the largest HAMP servicers each quarter as part of Treasury’s on-site and remote compliance testing at each of the largest servicers. SIGTARP’s concerns over servicer misconduct contributing to homeowner redefaults in HAMP have been borne out. Treasury’s findings in its on-site visits to the largest seven mortgage servicers in HAMP over the most recent four quarters show disturbing and what should be unacceptable results, as 6 of 7 of the mortgage servicers had wrongfully terminated homeowners who were in “good standing” out of HAMP.v These staggering findings clearly show that servicer misconduct is contributing to some homeowners falling out of HAMP. Homeowners were wrongly terminated from HAMP by their servicer despite making timely mortgage payments, putting them at risk of losing their home. These homeowners were forced out of HAMP through no fault of their own. Mortgage servicers did not give these homeowners a fair shot. As these instances were found through sampling, Treasury does not know how many other homeowners were also wrongfully forced out of HAMP.

IN THE LAST YEAR, SIX OF THE SEVEN LARGEST HAMP SERVICERS WRONGFULLY TERMINATED HOMEOWNERS OUT OF HAMP WHO WERE PAYING THEIR MORTGAGE

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