Key Findings and Lessons Learned Series
About the Series:
In an effort to continue the dialogue and both reflect and build upon the learning of the past seven years, aspects of the Making Home Affordable (MHA) program provide valuable experiential lessons that can be beneficial for industry stakeholders in preparing for facing what comes next, as well as the establishment of best practices for the mortgage industry. Evaluating the success of actions taken specific to the introduction, rollout, progression, and ongoing operations of MHA should inform any future efforts. Therefore, Treasury will post a series of publications on various topics to provide additional insight into the data and lessons learned from MHA.
Making Home Affordable (MHA) developed best practices in communicating and marketing a government program to struggling homeowners who were recovering from the financial crisis. This installment of the series focuses on lessons learned in the areas of raising program awareness and communication strategies developed by MHA to prompt homeowners to take action and seek assistance.
Making Home Affordable (MHA) established standards for affordable and sustainable foreclosure prevention solutions, and improved the customer service relationship between mortgage servicers and homeowners. This installment of the series focuses on the lessons learned in the areas of customer relations and access to information and offers best practices for future policy formulation:
- Simplicity and consistency in communication and documentation
- Transparent sources of information
- Access to third party assistance
- Standardized independent review process
- Access to financial counseling
- Develop partnerships and leverage external resources
Analysis examines the HAMP Tier 2 dataset using logistic regression in order to answer two questions about the performance of HAMP modifications:
- Is the post-modification front-end debt-to-income ratio (DTI) a significant indicator of modification performance?
- Does the importance of DTI as an indicator of post-modification performance change depending on the borrower’s income level (i.e., is the performance of HAMP modifications for low-income borrowers more sensitive to DTI than those for higher-income borrowers)?
In 2012 the Making Home Affordable Program analyzed the effect of Principal Reduction Alternative (PRA) on modifications in the Home Affordable Modification Program. The key findings in that analysis were:
- Payment reduction is an important driver of HAMP modification performance.
- HAMP modification re-default rates also fall as the loan’s after-modification mark-to-market loan-to-value, or MTMLTV, ratio decreases (i.e. as the size of the loan’s current principal balance relative to the home’s value decreases).
- HAMP PRA participating servicers tend to use the principal reduction feature on loans that have relatively riskier credit characteristics than the overall HAMP population - borrowers with much lower credit scores and that are more seriously delinquent at time of modification.
- A logistic regression controls for these riskier characteristics. The regression shows that for a given payment reduction, homeowners who received a HAMP modification with principal reduction perform better than homeowners who receive a HAMP modification without principal reduction.
Due to the limited availability of seasoned PRA modifications in 2012, the original analysis focused on “early re-default”—meaning a modified loan goes 90+ days delinquent and loses good standing in HAMP within the first six months.
With the benefit of a higher volume of seasoned modified loans, Making Home Affordable has re-performed the analysis, confirmed the original findings, extended the window of observation to 24 months and shown that the default reducing benefit of Principal Reduction Alternative persists over time.
Lessons Learned from the Government’s Financial Crisis-era Programs Offer Guiding Principles for Future Loss Mitigation Efforts
The U.S. Department of the Treasury, the U.S. Department of Housing and Urban Development (HUD), and the Federal Housing Finance Agency (FHFA) released a white paper designed to serve as a guide for future loss mitigation programs that draw on the lessons learned from implementing the government’s crisis-era housing recovery programs.
Over the past seven years, the foreclosure prevention programs established by Treasury, HUD and FHFA have transformed the way in which the mortgage servicing industry has interacted with and assisted struggling homeowners. Additionally, Making Home Affordable (MHA) and other crisis-era homeowner assistance programs resulted in improved homeowner engagement in the loss mitigation process, new guidelines for the types of loss mitigation options offered to homeowners and standardized procedures for how such options are provided. The programs also supported the recovery of the housing market and demonstrated that a mortgage modification can be a sustainable option for homeowners seeking to avoid foreclosure.
The white paper outlines five principles that the agencies believe were essential to the success of the government’s programs and should provide a foundation for any future loss mitigation programs. The principles are:
- Accessibility: Ensuring that there is a simple process in place for homeowners to seek mortgage assistance and that as many homeowners as possible are able to easily obtain the needed and appropriate level of assistance.
- Affordability: Providing homeowners with meaningful payment relief that addresses the needs of the homeowner, the servicer and the investor to support long-term performance.
- Sustainability: Offering solutions designed to resolve the delinquency and be effective long-term for the homeowner, the servicer and the investor.
- Transparency: Ensuring that the process to obtain assistance, and the terms of that assistance, are as clear and understandable as possible to homeowners, and that information about options and their utilization is available to the appropriate parties.
- Accountability: Ensuring that there is an appropriate level of oversight of the process to obtain mortgage assistance.
Executive Summary (2014)
This study analyzes the performance of HAMP modifications to better understand the key factors affecting their performance by using single-variable and econometric analysis (regression testing) to isolate the key factors affecting HAMP modification performance and to compare the performance of loans modified through HAMP with other similarly delinquent loans.
The regression analysis supports the proposition that HAMP modifications have a better probability of success than similar loans that are either not modified or modified outside of HAMP. While the higher success rate of HAMP modifications is partly attributable to their greater amount of payment reduction, the analysis found that HAMP modifications still perform better even after controlling for modification terms, including payment reduction. Additionally, the analysis found that even modifications that simply bring a delinquent borrower current may have a positive impact on payment behavior.
Further, the most significant factors driving HAMP modification performance are the amount of monthly payment reduction relative to the borrower’s pre-modification payment, the length of the borrower’s delinquency at time of modification, and, to a slightly lesser extent, credit score at time of modification.
To help responsible homeowners avoid foreclosure, the federal government launched Making Home Affordable (MHA) in March 2009, which provided a structured framework for mortgage modifications as well as financial incentives to encourage modifications. However, in order for homeowners to get needed help, servicers had to change their business models. That is why the Department of the Treasury issued a number of requirements for servicers participating in MHA—not only to establish standards as to how to make modifications affordable and sustainable, but also to improve the customer service relationship between mortgage servicers and homeowners. That is also why Treasury required the largest MHA servicers to provide each homeowner seeking help through MHA a “single point of contact” (SPOC) who would work with the homeowner to avoid foreclosure. The purpose of this special report is to review the implementation of the SPOC requirement by the largest servicers participating in MHA. This report is intended to serve as a basis for a broader discussion on how the SPOC requirement can best be implemented for all servicers, not only those participating in MHA, so that communication between the homeowner and servicer can be improved from the dismal conditions that marked the beginning of the crisis. Report findings show that servicers have reorganized their homeowner communication areas and expanded staff capacity. The nine servicers surveyed for this report had more than 12,000 individuals whose primary, if not sole, responsibility was to communicate with homeowners seeking assistance. Nearly 6,000 other personnel were assigned to help SPOCs collect and process documents from homeowners.
In 2013 and 2014, the U.S. Department of the Treasury conducted two surveys regarding the home mortgage modification portion of Making Home Affordable®, the Home Affordable Modification Program (also known as HAMP®).
Phase 1 of the survey asked various questions about the homeowner’s experience with HAMP, including why homeowners missed payments after receiving a HAMP modification, the homeowner’s satisfaction with the modification process, and homeowner-servicer communication. Survey recipients included homeowners who received a HAMP modification between 2009 and 2013 and subsequently missed three consecutive mortgage payments (a “re-default”).
Click on the link below to view a complete list of the Phase 1 survey questions and the aggregate responses.
Phase 2 of the survey asked various questions about the homeowner experience with HAMP, including the homeowner’s experience in working with their mortgage lender and the homeowner’s understanding of the terms of their modified mortgage loan, specifically related to the rate step-up feature of the modification. Survey recipients included homeowners who are currently in a HAMP modification that was effective between 2009 and 2013.
Click on the link below to view a complete list of the Phase 2 survey questions and the aggregate responses