The Treasury Department said it expects mortgage servicers to begin evaluating borrowers under an expanded Home Affordable Modification Program in May.
The latest program is being referred to as HAMP 2.5.
In January, the Treasury extended the application deadline to the end of 2013, eased debt-to-income requirements, allowed investors with rental homes into the program, and announced it would pay investors triple for principal reductions. While the administration wouldn’t estimate how many borrowers could be allowed into the program as a result of the changes, bank analysts said it could net roughly 500,000 extra modifications.
Roughly $29.9 billion in TARP funds have been allocated for HAMP and other foreclosure prevention programs, but only $2.3 billion has been spent as of Dec. 31. Some of the remaining amount will be spent on the expanded program.
Participating servicers started roughly 325,000 permanent modifications in 2011, down 34% from more than 423,000 started the year before, according to an analysis of Treasury data released Monday.
In 2010, servicers began making improvements from paltry workout numbers. HAMP launched in March 2009, and by December of that year, only 67,000 three-month trials had been converted to permanent status. In February 2010, servicers converted 63,000 trials alone.
The Treasury tightened documentation requirements and began evaluating servicer performance, even witholding HAMP payments from some servicers. Many, including the Special Inspector General of TARP said the administration should do more to crack down on the worst performers.
“The decline in permanent modification starts is due, at least in part, to the shrinking eligible borrower pool,” said Isaac Boltansky, a policy analyst at Compass Point.
At the end of October 2010, roughtly 1.5 million borrowers were eligible for HAMP modifications, according to the Treasury. A year later, about 890,000 borrowers were eligible.
“This represents almost a 40% reduction in eligible borrowers year-over-year and is exactly why the Obama administration announced that it will make eligibility changes to the HAMP. The specifics of how Treasury intends to alter or augment the debt-to-income formula for the HAMP could result in a meaningful increase in borrower eligibility for the program,” Boltansky said.
Servicers started roughly 4,500 HAMP modifications that included principal reductions in December.
The Treasury said trials started in June will begin reflecting the latest HAMP changes, which include higher principal reduction payments.
“The recent enhancements we have announced will bring further assistance to homeowners, renters and their communities as our nation continues to heal from an unprecedented housing crisis,” said Treasury Assistant Secretary Tim Massad.