Could federal foreclosure assistance programs have helped more consumers in Illinois and throughout the country if banks had been more organized? According to a recent study conducted by researchers at the Stanford Graduate School of Business, the Home Affordable Modification Program (HAMP) did prevent many homeowners from losing their homes to foreclosure, but it could have been significantly more effective if banks had made internal changes that would have allowed them to better serve struggling consumers.
What does this study teach us about foreclosure prevention and the role banks play in this process?
HAMP Did a Lot of Good, But it Could Have Helped More Homeowners
The first thing to know about the study is that HAMP, the federal foreclosure assistance program launched by then-President Barack Obama in 2009, did have a significant impact on struggling homeowners who were at risk of foreclosure. As the study explains, HAMP “aimed to help families keep their homes by offering incentives to banks and loan-serving companies that modified mortgages of troubled borrowers.” In many ways, it did work—to an extent. According to Amit Seru, one of the co-authors of the study, HAMP resulted in “1 million additional permanent loan modifications and prevented about 600,000 foreclosures that otherwise would have occurred.”
At the same time, HAMP could have done even more. To better understand what the limitations were, it is important to understand precisely how HAMP did help some homeowners. As the authors of the study explain, the federal foreclosure assistance program gave “modest financial incentives” to banks and mortgage services if they were willing to provide loan modification for homeowners at risk of foreclosure. For each modified home loan, through HAMP the federal government gave banks and mortgage servicers $1,000. In addition, if those homeowners remained current on their loans for the following three years, the banks or mortgage servicers would receive an additional annual payment of $1,000.
HAMP aimed to help millions of consumers avoid foreclosure. If banks had been willing to deal with organizational issues, the study estimates that HAMP could have helped 70% more homeowners who were facing foreclosure.
Banks and Servicers Lacked the Organizational Capacity to Renegotiate High Volumes of Mortgages
How did the banks fail so many struggling homeowners with regard to HAMP? In short, they “lacked the organizational capacity to renegotiate large numbers of loans and opted not to make internal changes that would have enabled them to take advantage of the program.” To put that another way, banks and mortgage-servicing companies could have made changes so that they could help more struggling homeowners with modifications—perhaps as many as 70% more—yet the banks and mortgage-servicing companies did not make those changes.
The good news is that, for those homeowners who had their mortgages modified through HAMP and avoided foreclosure, many remain on track with mortgage payments.
For the millions of Americans who did not receive help through HAMP, the authors of the study suggest that, in the event of another foreclosure crisis, federal programs like HAMP could be developed in such a way that bank organizational issues are less likely to affect the program’s ultimate success. In other words, some of the blame is on the banks, but it is also possible that policymakers could have dealt with the pressing matter that “some banks just don’t have the organization design conducive for such activity” as renegotiating thousands of mortgages.
Contact an Oak Park Foreclosure Defense Lawyer
If you have questions about foreclosure and Oak Park real estate issues, a foreclosure defense attorney in Oak Park can speak with you today. Contact the Emerson Law Firm for more information.
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