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entitled 'Troubled Asset Relief Program: Results of Housing Counselors
Survey on Borrowers’ Experiences with the Home Affordable Modification
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May 26, 2011:
Congressional Committees:
Subject: Troubled Asset Relief Program: Results of Housing Counselors
Survey on Borrowers' Experiences with the Home Affordable Modification
Program:
To restore stability and liquidity to the financial system, Congress
established the $700 billion Troubled Asset Relief Program (TARP) and
directed the Department of the Treasury (Treasury) to use the
authorities granted under TARP to, among other things, preserve
homeownership and protect home values.[Footnote 1] In February 2009,
Treasury announced that up to $50 billion in TARP funds had been
allocated to help struggling homeowners avoid potential foreclosure.
However, the number of borrowers facing potential foreclosure has
remained at historically high levels. In fact, in the first 2 years of
the TARP-funded Home Affordable Modification Program (HAMP), more
borrowers were denied or canceled from trial loan modifications than
were given permanent modifications.[Footnote 2] In three prior reports,
we looked at the implementation of HAMP and made several
recommendations that were intended to address the challenges that
Treasury faced in implementing the program.[Footnote 3]
To better understand the experience of borrowers seeking HAMP
modifications, we conducted a Web-based survey of housing counselors
through the National Foreclosure Mitigation Counseling Program (NFMC)
to obtain the counselors' perspectives of borrowers' experiences with
HAMP.[Footnote 4] NFMC is administered by NeighborWorks America and
funds approximately 130 grantees and 1,700 subgrantees to conduct
foreclosure mitigation counseling. We reported on some of the survey's
findings in our March 2011 report but expand on them in this
correspondence.[Footnote 5] The survey was designed to obtain
information on (1) borrowers' overall experiences with HAMP, (2) HAMP
trial modification denials, (3) HAMP trial modifications, (4) the HAMP
Solution Center, (5) ways Treasury could improve HAMP, and (6)
proprietary (non-HAMP) modifications. This correspondence summarizes
the results of each of the six survey segments. The survey and a more
complete tabulation of the results from 396 counselors can be viewed at
GAO-11-368SP.
Survey Methodology:
We conducted a Web-based survey of housing counselors who worked for a
network of approximately 130 non-profit housing agencies that receive
funding through NFMC. Although NFMC counselors are not the only
counselors that work with borrowers seeking HAMP modifications, it is
one of the largest federally-funded networks of counselors who conduct
foreclosure mitigation counseling. Because there was no readily
reliable database of borrowers who had sought HAMP modifications, we
surveyed housing counselors as a proxy for borrowers. We asked the
counselors to report on their experiences between June 1, 2010, and the
time of the survey (October 21 through November 5, 2010). We received
over 500 responses out of an estimated 3,500 counselors who could have
potentially responded. To identify experienced counselors who had
direct experience with HAMP matters, we asked screening questions early
in the survey to ensure that respondents had at least 3 months of
foreclosure counseling experience and had counseled at least five
borrowers on HAMP. Just over 500 counselors went to our Web site and
began the survey. After removing 109 surveys from counselors who lacked
sufficient experience or who had not finished the surveys, we had 396
completed counselor surveys for analysis.
Because NeighborWorks could not provide the exact number of counselors
who could have responded to the survey, and because the extent to which
all NFMC counselors are involved in HAMP counseling is not known, we
could not calculate a precise response rate.[Footnote 6] However,
because we are reporting on the results from only 396 counselors who
self-selected to participate out of an estimated potential pool of over
3,500 counselors, we looked for similarities between the respondents
and information that NeighborWorks provided on NFMC counselors and the
borrowers they serve. For example, we compared the geographic
distribution of counselors responding to our survey to information
provided by NeighborWorks on the geographic distribution of borrower
served by NeighborWorks counselors and found that the distribution was
roughly similar.[Footnote 7] In addition, the experiences of borrowers
who contact counselors might not necessarily be representative of all
borrowers who attempt to obtain a HAMP first-lien modification because
many borrowers will contact their servicers directly and may never
utilize the services of an NFMC counselor or any other counselor. Also,
borrowers seeking the help of counselors may be more likely to have
questions or concerns about the HAMP program than borrowers who do not
seek such help. As a result, these results cannot be generalized to the
experience of all borrowers seeking HAMP modifications. However, the
data provide insights into the experiences of counselors and the
borrowers they have worked with regarding the HAMP first-lien program
as of the time of the survey.
We conducted this performance audit from July 2010 through May 2011 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on the audit objectives.
Background:
HAMP first-lien mortgage modifications are available to qualified
borrowers who occupy their properties as their primary residence, took
out their loans on or before January 1, 2009, and have a first-lien
mortgage payment of more than 31 percent of their gross monthly income
(calculated using their front-end debt-to-income [DTI] ratio).[Footnote
8] Eligible borrowers must first complete a 90-day trial modification
period before receiving a permanent modification. During the trial
period, borrowers must make all of their modified payments in full and
on time in order to be eligible for conversion to a permanent
modification.
Borrowers seeking a HAMP loan modification work directly with their
loan servicers but can also seek the assistance of a housing counselor
at any point during the application process. Housing counselors can
help borrowers determine whether they may be eligible for HAMP and
answer questions about the program. In addition, counselors can submit
borrowers' HAMP applications to servicers and help submit complaints to
servicers or Treasury. For instance, borrowers may seek help on the
process for submitting a complaint if they feel they were wrongly
denied a HAMP modification. Finally, HAMP requirements stipulate that
borrowers obtain counseling if the monthly payments on their total debt
are more than 55 percent of their gross monthly income.
On its HAMP Web site, Treasury refers borrowers to the Homeowners HOPE
Hotline as a resource to help them understand their options and obtain
a referral to counseling agencies approved by the Department of Housing
and Urban Development.[Footnote 9] These include counseling agencies
funded by NeighborWorks America. Counselors in the NeighborWorks
America network provide both in-person and telephone counseling and are
located nationwide. Treasury has provided some guidance and assistance
for intermediaries, including counselors, in working with borrowers who
are seeking HAMP modifications and has established the HAMP Solution
Center for housing counselors to call with borrower complaints. The
HAMP Solution Center is operated by Fannie Mae, the Making Home
Affordable (MHA) program administrator, and assists counselors
primarily by serving as a liaison with servicers.
Borrowers' Overall Experiences with HAMP:
Borrowers can contact counselors for a number of reasons. They may have
simple questions about their options if they are experiencing financial
difficulties, or they may need assistance contacting servicers about
obtaining a HAMP first-lien modification or some other type of
foreclosure mitigation assistance. Our questionnaire asked housing
counselors to list the three most common reasons borrowers contacted
them about HAMP.[Footnote 10] The most frequently cited reasons were:
* lost documentation (59 percent)--servicer claims to have lost HAMP
application documentation;
* long trial periods (54 percent)--borrower has been in a HAMP trial
modification for more than 3 months;
* wrongful denials (42 percent)--borrower feels he or she was wrongly
denied a HAMP modification;
* difficulty contacting servicer (37 percent)--borrower is having
difficulty contacting the servicer; and:
* questions about HAMP (32 percent)--borrower has questions about the
program or application.
Consistent with the frequency with which counselors reported that
borrowers had contacted them because of concerns they had with the HAMP
process, roughly 76 percent of the 394 counselors responding to this
question characterized borrowers' overall experiences with HAMP--from
the time they first inquired to the point at which they received a
decision--as "negative" or "very negative."[Footnote 11] In contrast,
less than 9 percent of counselors described borrowers' overall
experience with HAMP as "positive" or "very positive" (fig. 1). Roughly
40 percent of the 312 counselors that provided written comments on
their experiences with HAMP said that they had experienced difficulties
working with servicers--for example, receiving inconsistent or
confusing information or speaking to a different representative each
time they called the servicer.
Figure 1: Counselors' Views of Borrowers' Overall Experiences with
HAMP, from June 1 to November 5, 2010:
[Refer to PDF for image: horizontal bar graph]
Very positive: 1%;
Positive: 8%;
Neither positive nor negative: 15%;
Negative: 43.4%;
Very negative: 33%;
No response: <1%.
Source: GAO Survey of Housing Counselors.
Note: Percentages may not sum to 100 percent due to rounding. We asked
counselors to report on their experiences from June 1, 2010, to the
time of the survey, which was administered from October 21, 2010,
through November 5, 2010.
[End of figure]
Roughly 39 percent of the 312 respondents who provided written comments
said that borrowers' overall negative experiences were related to
documentation issues with servicers that said paperwork had been lost
or needed to be resubmitted.[Footnote 12] In addition, roughly 30
percent of the 312 counselors who provided written comments on their
experiences with HAMP cited the lengthy decision-making processes when
asked to explain their ratings of borrowers' overall experience with
HAMP.
HAMP Denials of Trial Modifications:
Many counselors responding to our survey cited concerns about HAMP
trial modification denials, including long waiting periods and denials
resulting from miscalculations of borrowers' income.
Long Decision Periods Cited:
According to Treasury's HAMP guidelines, servicers are required to
notify borrowers that they have been approved for or denied a trial
modification within 30 days of receiving a complete HAMP application
package. However, over 86 percent of counselors who responded to our
survey said that it typically took 4 months or more for borrowers to
receive a decision about a HAMP trial modification from the time the
borrower requested it. Nearly 46 percent of the counselors said that
the process typically took 7 months or more. When asked to identify the
three principal reasons for such delays, over 80 percent of counselors
ranked banks' requests for updated financial information as one of the
three primary reasons. According to HAMP guidelines, income
documentation must be no more than 90-days old when servicers receive
it. In addition, roughly 73 percent of counselors cited servicers
losing documentation as one of the three primary reasons for long
decision periods.
As shown in figure 2, we further explored the association between
counselors' reporting on the length of the decision process and their
rating of borrowers' overall HAMP experiences and found that counselors
who reported negative borrower experiences also reported lengthy
decision times for HAMP trial modifications. For example, more than
half of counselors who rated borrowers' overall experiences as "very
positive" or "positive" also reported decision times for trial
modifications of 6 months of less. Twenty-seven percent reported
decision periods of 1 to 3 months and 48 percent reported decision
periods of 4 to 6 months. In contrast, over half of counselors who
reported "very negative" or "negative" borrower experiences reported
decision times for trial modifications of 7 months or more. Twenty-
seven percent reported decision periods of 7 to 9 months, 16 percent
reported decision periods of 10 to 12 months, and 9 percent reported
decision periods of more than 12 months.
Figure 2: Counselors' Responses on Length of Decision Process about
HAMP Trial Modifications and Overall Borrower Experiences, from June 1
to November 5, 2010:
[Refer to PDF for image: vertical bar graph. Value represented as
percentage.]
Time: Less than 1 month;
Very positive or negative: No value;
Neither positive nor negative: 2;
Negative or Very Negative: No value.
Time: 1 to 3 months;
Very positive or negative: 27;
Neither positive nor negative: 24;
Negative or Very Negative: 9.
Time: 4 to 6 months;
Very positive or negative: 48;
Neither positive nor negative: 41;
Negative or Very Negative: 39.
Time: 7 to 9 months;
Very positive or negative: 18;
Neither positive nor negative: 19;
Negative or Very Negative: 27.
Time: 10 to 12 months;
Very positive or negative: 6;
Neither positive nor negative: 5;
Negative or Very Negative: 16.
Time: More than 12 months;
Very positive or negative: 7;
Neither positive nor negative: No value;
Negative or Very Negative: 9.
Source: GAO Survey of Housing Counselors.
Note: Percentages may not sum to 100 due to rounding. We asked
counselors to report on their experiences from June 1, 2010, to the
time of the survey, which was administered from October 21, 2010,
through November 5, 2010.
[End of figure]
Miscalculation of Income Issues Identified:
Counselors expressed concerns about potential miscalculations of
borrowers' income that resulted in denials for HAMP trial
modifications. As of September 30, 2010, around the time we
administered the survey, roughly 974,000 borrowers had been denied or
had not accepted HAMP trial modifications, compared with roughly
496,000 borrowers who had received permanent HAMP modifications.
According to Treasury, borrowers were often denied HAMP trial
modifications because their total monthly housing payments were already
below 31 percent of their gross monthly income. When asked how often
borrowers they had worked with were denied for this reason, roughly 60
percent of the counselors responding to this question said "often" or
"sometimes." Of these 60 percent, over half of the counselors (53
percent) said that a substantial number of these denials were related
to servicers' miscalculations of borrowers' gross monthly income. When
asked to list the three reasons for their concern about income
miscalculations, these counselors cited miscalculating self-employment
income (61 percent), using the income of one or more nonborrower (not a
cosigner) in the income calculation (60 percent), and including income
from unemployment and other benefit programs (59 percent).[Footnote 13]
Straightforward miscalculations of annual income (e.g., confusing
biweekly, semi-monthly, and weekly pay) were also cited as a concern
(53 percent).
Trial Modifications:
Counselors Reported Long HAMP Trial Periods:
HAMP guidelines require that borrowers successfully complete a 90-day
trial period, during which they make all the required payments on time
before they can become eligible for conversion to a permanent
modification. However, as of September 30, 2010--around the time of our
survey--76,500 active trials (44 percent of all active trials) had been
in place for 6 months or more. Nearly all of the counselors we surveyed
(96 percent) said trial periods typically lasted longer than 3 months,
and 50 percent of these counselors said that trial periods typically
lasted 7 months or more. When asked the primary reason that trial
modifications lasted longer than 3 months, over 43 percent of
counselors said that they did not know, because the servicer did not
disclose the reasons. Nearly 30 percent said that the servicer informed
the borrower or counselor that it had a backlog of HAMP applications,
suggesting that the servicer did not have the capacity to handle the
volume of HAMP applications. According to Treasury's monthly Servicer
Performance Reports, the number of trial modifications that have lasted
6 months or more has improved in recent months. As of the end of March
2011, roughly 26,400 active trials (about 19 percent of all active
trials) had been initiated at least 6 months earlier--a marked decrease
from the 44 percent that Treasury reported in September 2010.
Counselors Cited Documentation Issues as a Factor in Canceling Trial
Modifications:
Treasury has reported that one of the most common reasons for canceling
trial modifications is insufficient documentation. However, Treasury
indicated that it was unable to determine whether borrowers had not
submitted the required documentation or servicers had lost or misplaced
it. According to 96 percent of the counselors we surveyed, "servicer
continues to request borrower's updated financial documentation" was
one of the three principal challenges borrowers faced in providing the
required documentation. In addition, over 78 percent of the counselors
ranked "servicer lost the borrower's documentation" as one of the three
highest challenges (fig. 3).
Figure 3: Principal Challenges Reported by Counselors for Borrowers in
Providing Required HAMP Documentation, from June 1 to November 5, 2010:
[Refer to PDF for image: horizontal bar graph]
Servicer continues to request borrowers to update documentation: 96%;
Servicers lost borrower's documentation 78%;
Documentation was not supportive of stated income: 38%;
Borrowers could not provide exact documentation because requirements
too rigid: 32%;
Borrowers did not know how to obtain required documentation: 18%;
Other: 24.
Note: Percentages sum to over 100 because counselors were allowed to
choose three options. We asked counselors to report on their
experiences from June 1, 2010, to the time of the survey, which was
administered from October 21, 2010, through November 5, 2010.
Source: GAO Survey of Housing Counselors.
[End of figure]
HAMP Solution Center:
Borrowers can submit complaints about HAMP to the HOPE Hotline, and
complaints that cannot be resolved at this level can be escalated to
the HAMP Solution Center.[Footnote 14] The HAMP Solution Center also
handles escalated complaints received from housing counselors,
government offices, and other third parties acting on behalf of
borrowers.[Footnote 15] According to Treasury, roughly 21,000
complaints had been escalated to the HAMP Solution Center as of
February 2011, with roughly a quarter of these submitted by housing
counselors. Treasury officials told us that of these escalated
complaints, roughly 17,000 had been resolved, with 32 percent of the
resolved cases resulting in a permanent HAMP modification,
consideration for a HAMP trial modification, or the initiation of a
trial modification. Among the 206 counselors who had referred at least
one complaint to the HAMP Solution Center since June 1, 2010, roughly
42 percent said that the center had been "ineffective" or "very
ineffective" in resolving it. An additional 26 percent said the HAMP
Solution Center was "neither effective nor ineffective" at resolving
these complaints, and 26 percent said it was "effective" or "very
effective." When asked to provide a brief explanation for their ratings
of the center, 89 counselors provided comments. Roughly 25 percent of
this group of counselors cited responses related to negative
experiences with HAMP Solution Center agents, such as not hearing back
or taking too long to respond. In addition, roughly 20 percent of
counselors said that HAMP Solution Center staff do not have authority
to resolve complaints.
In November 2010, Treasury issued new program guidelines that aimed to
strengthen the HAMP complaint process, including the HAMP Solution
Center. The guidelines went into effect as of February 1, 2011, and
require servicers to maintain more comprehensive documentation on cases
brought to them by the HAMP Solution Center and to regularly update
HAMP Solution Center staff on the status of complaints. In addition,
the guidelines allow HAMP Solution Center staff to either concur or
disagree with a servicer's claim that a case has been resolved. The
servicer may also not consider the case resolved until the Solution
Center staff agrees with the proposed resolution. Written evidence of
the Solution Center's concurrence must be retained in the servicing
file.
Ways Treasury Could Improve HAMP:
We asked housing counselors to rank the three actions Treasury could
take to improve the rate of successful modifications. We provided
various options that we had identified based on our prior work and
relevant research and asked counselors to identify any additional
options. As shown in figure 4, counselors most often said that Treasury
should enforce sanctions on servicers that did not comply with HAMP
guidelines (60 percent). In June 2010, we reported that Treasury had
not yet clearly stated the consequences of noncompliance with HAMP and
recommended that Treasury expeditiously finalize them. Treasury told us
that it had asked servicers to rectify issues associated with
noncompliance and in some cases had withheld financial incentives but
had not yet finalized consequences for noncompliance. Counselors also
cited the need for Treasury to require servicers to make more timely
decisions (51 percent) and to ensure that servicers worked with
borrowers who were not yet 60 days delinquent (41 percent).
Figure 4: Counselors Views on Actions Treasury Could Take to Improve
HAMP, from June 1 to November 5, 2010:
[Refer to PDF for image: horizontal bar graph]
Enforce sanctions for noncompliance: 60%;
Require servicers to make more timely decisions: 51%;
Ensure servicers work with borrowers not yet 60 days delinquent; 41%;
Require more training of servicers: 36%;
Release NPV model: 36%;
Strengthen escalation process: 34%;
Require clear explanation of income calculation: 25%;
Target back-end DTI: 7%;
Other: 6%.
Source: GAO Survey of Housing Counselors.
Note: Percentages sum to over 100 because counselors were allowed to
choose three options. We asked counselors to report on their
experiences from June 1, 2010, to the time of the survey, which was
administered from October 21, 2010, through November 5, 2010.
[End of figure]
According to Treasury officials, the agency has taken recent actions to
address some of these concerns. For example, the guidelines that it
implemented in February 2011 are intended to strengthen the complaint
escalation process. In addition, the officials noted that effective May
1, 2011, servicers would be required to develop and adhere to a written
policy describing the basis for determining a borrower's monthly gross
income. Treasury officials also told us that as a continuation of its
ongoing compliance activities, which evaluate servicer performance
against MHA program guidelines, Treasury is developing and will release
compliance assessments for each of the 10 largest MHA servicers.
Treasury officials said that these assessments, which would summarize
the performance evaluations of each of those 10 servicers' compliance
with MHA requirements, were intended to make servicers' performance
more transparent to the public.
Proprietary Modifications:
As we noted in our March 2011 report, borrowers who are not helped by
HAMP may be helped by non-HAMP, or proprietary modifications, which may
offer greater flexibility.[Footnote 16] Specifically, servicers told us
that their proprietary modifications had fewer documentation
requirements, fewer eligibility requirements, and more flexibility
around the DTI threshold. To better understand the characteristics of
proprietary modifications, we asked about the terms and characteristics
of the modifications the counselors considered effective. Sixty-four
percent of housing counselors who responded to our survey noted that
effective proprietary modifications differed from HAMP modifications in
that they assisted borrowers with front-end DTI ratios below 31
percent. In addition, 58 percent of counselors noted that, unlike HAMP,
effective proprietary modifications also had targets for acceptable
total debt levels.
The survey results are consistent with our earlier findings.
Specifically, we previously reported that servicers were not consistent
in their treatment of borrowers and that Treasury had not done enough
to hold servicers accountable for their performance. Among other
things, we recommended that Treasury finalize and issue consequences
for servicer noncompliance with HAMP requirements and finalize and
implement benchmarks for performance measures under the first-lien
modification program. Fully implementing these recommendations will
help Treasury ensure that borrowers are treated consistently and that
servicers are held accountable for their performance. We will continue
to monitor Treasury's implementation of our prior recommendations for
providing greater accountability and transparency for HAMP.
Agency Comments and Our Evaluation:
We provided a draft of this report to Treasury for its review and
comment, and we received written comments from the Acting Assistant
Secretary for Financial Stability, which are reprinted in enclosure I.
We also received technical comments from Treasury, which were
incorporated into the report as appropriate. In its written comments,
Treasury stated that the survey results shed light on a group of
counselors' perceptions of the experiences some borrowers have had with
HAMP, including the HAMP Solution Center. However, Treasury also
pointed out that the survey was conducted in October 2010 and asked
respondents about experiences dating back to June 2010 and noted that a
7-to 12-month lag in data could significantly affect the applicability
of the results. But Treasury noted that many of the concerns raised--
for instance about lost documentation--were still issues and agreed
with many of the specific actions identified in the survey for
improving HAMP.
Treasury noted in its comment letter that improvements had been made to
HAMP since the time of the survey. Specifically, the backlog of trial
modifications lasting 6 months or longer had improved, as was noted in
the draft report. Treasury also noted that since June 2010 servicers
have been required to verify borrowers' income prior to offering a
trial modification, resulting in a substantial decrease in the length
of trial modifications. While the survey asked counselors to report on
their experiences since June 2010, Treasury notes that many of the
responses related to the length of trial modifications were likely
based on trial periods started in previous months. In addition,
Treasury cited additional program improvements that had been
implemented or were underway that would not have been reflected in our
survey results. Specifically, Treasury noted that it planned to release
compliance assessments for the 10 largest MHA servicers to provide
greater transparency regarding servicer performance. Treasury also
noted that it had issued additional servicer guidelines that addressed
decision-period requirements for trial modifications, calculation of
borrower income, and borrower and third-party complaint and escalation
processes. Additionally, Treasury indicated that it had been working to
develop and release a publicly accessible version of the net present
value model used to assess borrower eligibility for HAMP. We
acknowledged several of these actions in the draft report, but the
extent to which these steps have improved borrowers' experiences with
HAMP since the time of the survey remains unclear.
Finally, Treasury noted concerns with the survey process. For example,
the survey results do not directly characterize borrowers' experiences
with HAMP, but rather counselors' views of borrower experiences. We
also made this observation in our draft report. Further, Treasury noted
that the survey did not attempt to determine whether there was any
correlation between negative responses and denials of HAMP
modifications. As we stated, borrowers seeking the help of counselors
may be more likely to have concerns about HAMP than borrowers who do
not seek such help, and the high proportion of counselors reporting
negative borrower experiences is consistent with this notion. Treasury
also said that the survey results were based on a small percentage of
respondents and that borrowers seeking assistance may also seek
assistance through other means such as the HOPE hotline. As a result,
it is not clear what proportion of borrowers who have applied or
received HAMP modifications is represented by the survey. The draft
report acknowledged that the survey results do not generalize to the
experiences of all borrowers seeking HAMP modifications but noted that
the data provide insights into the experiences of counselors and
borrowers they have worked with as of the time of the survey. For
example, 111 of the 396 counselors (28 percent) that responded to our
survey indicated that they had counseled over 100 borrowers each on
HAMP-related matters since June 1, 2010, or more than 11,000 borrowers
for this group of counselors.
We are sending copies of this report to the appropriate congressional
committees. This report will also be available at no charge on our Web
site at [hyperlink, http://www.gao.gov]. Should you or your staff have
questions concerning this report, please contact me at (202) 512-8678
or sciremj@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Key contributors to this report are listed in enclosure II.
Signed by:
Mathew J. Scirè:
Director:
Financial Markets and Community Investment:
Enclosures:
List of Congressional Committees:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:
The Honorable Tim Johnson:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Kent Conrad:
Chairman:
The Honorable Jeff Sessions:
Ranking Member:
Committee on the Budget:
United States Senate:
The Honorable Max Baucus:
Chairman:
The Honorable Orrin G. Hatch:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Harold Rogers:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable Paul Ryan:
Chairman:
The Honorable Chris Van Hollen:
Ranking Member:
Committee on the Budget:
House of Representatives:
The Honorable Spencer Bachus:
Chairman:
The Honorable Barney Frank:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Dave Camp:
Chairman:
The Honorable Sander Levin:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
[End of section]
Enclosure I: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington, D.C. 20220:
Assistant Secretary:
May 13, 2011:
Thomas J. McCool:
Director, Center for Economics:
Applied Research and Methods:
U.S. Government Accountability Office:
441 G Street, NW Washington, DC 20548:
Dear Mr. McCool:
Thank you for providing the Department of the Treasury ("Treasury") an
opportunity to review and comment on your draft correspondence titled
the Results of Housing Counselors Survey on Borrowers' Experiences with
HAMP ("Draft Correspondence").
We appreciate the GAO's ongoing efforts in assessing the housing
programs initiated under Treasury's Troubled Asset Relief Program
("TARP"). Your reports and recommendations are well-balanced,
insightful and constructive. Many of the recommendations and
information in the reports have helped guide our efforts in the housing
programs, programs that have faced many challenges in implementation
due to the unprecedented size and scope of the problems they arc
designed to address.
The survey results shed light on a group of counselors' perceptions of
the experiences some borrowers have had with the Home Affordable
Modification Program ("HAMP"), including the HAMP Solution Center
("HSC"). We agree with the statement in the Draft Correspondence that
"these results do not generalize to the experience of all borrowers
seeking HAMP modifications." Moreover, we note the age of the data --
the survey was conducted in October of 2010, and asked respondents
about experiences dating back to June of 2010 and the fact that a
number of improvements have been made to the program since the survey.
During the two years that HAMP has been operating, we have continually
enhanced the program relative to concerns raised in the survey. A seven
to twelve month lag in data, therefore, may significantly affect the
applicability of the results. The following are detailed comments that
outline these improvements and resulting concerns with the survey
process and the integrity of its results:
I. Improvements to HAMP since the Time of the Survey:
Several metrics that had a significant effect on driving the negative
perceptions of HAMP that you cite have improved since you conducted the
survey. The report does not make this clear. For example, the backlog
of trial modifications has decreased significantly. The GAO pointed out
the association between counselors reporting "negative" borrower
experiences and length of decision times for trial modifications. As
the GAO noted, as of February 2011, the percentage of trial
modifications lasting six months or longer has been cut in half since
June of 2010, from 44 percent of all active trials to 22 percent.
In addition, we implemented one of the most significant changes to the
program, the requirement for the servicer to verify a borrower's income
prior to offering a trial period, in June of 2010. Prior to June, we
allowed borrowers to enter trial period plans with a verbal statement
about income and subsequently send in their income documentation while
in their trial period plan. Although the survey inquired about
experiences with HAMP and HSC since June 2010, many of the responses
that related to length of trial modifications were based on trial
periods started in previous months. After the change to verified
income, one of the only reasons for denial of a permanent modification
is a borrower's failure to make his or her trial period payments. The
change resulted in a substantial decrease in the length of decision
times for trial modifications. Again, this change would have had an
impact on the number of "positive" responses from counselors.
We agree with many of the specific actions to improve HAMP that the GAO
listed. In fact, Treasury has already implemented some of these
improvements, and other actions are underway, including:
* Improving Compliance: Treasury has a robust compliance program, with
compliance agents performing reviews as often as monthly for the
largest servicer organizations. A priority of our compliance program
has been to ensure that homeowners are appropriately assisted and that
servicers are meeting their obligations under the program. In doing so,
we require remedial action where needed to correct areas of non-
compliance. As a continuation of our ongoing compliance operations,
Treasury is developing and intends to release compliance assessments
for each of the ten largest Making Home Affordable ("MHA")
participating servicers. These assessments will summarize the
performance evaluations of each of those servicers' respective
compliance with MHA requirements and is designed to provide greater
transparency regarding servicer performance.
As you know, Treasury has no authority to impose penalties for non-
compliance with MHA as a regulator would for violations of law.
However, under the contracts associated with MI-IA, Treasury already
has taken non-financial remedial action to require servicers to correct
areas of non-compliance. In addition, pursuant to the MHA contracts,
Treasury intends to begin withholding financial incentives for
servicers not in compliance with program requirements.
* More Timely Decisions: Treasury requires servicers to decide to offer
the borrower a trial modification or issue a non-approval notice within
30 days after receipt of a borrower's complete HAMP application. This
guidance, released in Supplemental Directive 09-08, became effective
January 1, 2010 and, as previously discussed, decreased the decision
times that resulted in the backlog of trial modifications.
* Clear Explanation of Income Calculation: Treasury issued Supplemental
Directive 11-01, which requires servicers to develop and adhere to a
written policy and procedures that describe the basis on which the
servicer will determine a borrower's monthly gross income. This
requirement is intended to ensure that similarly situated borrowers
will be treated consistently regarding income calculation. This
guidance became effective May 1, 2011.
* Require Servicers to Work with Borrowers 31 or More Days Delinquent:
Servicers are required to contact borrowers who are 31 or more days
delinquent on their mortgage payments with information about RAMP. This
requirement, released in Supplemental Directive 10-02 and effective
June 1, 2010, requires servicers to contact borrowers early in their
delinquency when home retention options are more viable.
* Strengthen Escalation Process: In November 2010, Treasury issued new
program guidelines in Supplemental Directive 10-15, which took effect
February 1, 2011, to strengthen the complaint and escalation process
for both borrowers and third party advocates.
* Release of NPV Model: Treasury has been working to develop and
release an NPV model accessible to the public over a website and
expects to release it shortly.
We have also worked to improve servicers' performance related to lost
documentation, an issue cited by survey respondents as one of the most
common reasons borrowers contacted them about HAMP. While we agree that
lost documentation remains an issue, Treasury's work to improve
servicers' processes has led to a decline in borrower calls to the HOPE
Hotline regarding lost documentation.
II. Specific Concerns with the Survey Process and Results:
As discussed above, the survey collected data on experiences dating
back almost one year and many improvements have been implemented since
that time. In addition, we have the following specific concerns about
the survey and the integrity of its results:
* Third Party Respondents: As the GAO points out in the Draft
Correspondence, "[b]ecause there was no readily reliable database of
borrowers who have sought HAMP modifications, [the GAO] surveyed
housing counselors as a proxy for borrowers." Therefore, the survey
results do not characterize borrowers' actual experiences with HAMP,
but rather counselors' interpretations of borrower experiences.
* Adverse sample: As the GAO acknowledges, "borrowers seeking the help
of counselors may be more likely to have questions or concerns about
HAMP than borrowers that do not seek such help." While the results
indicated 76 percent of respondents characterized their experience with
HAMP as "negative" or "very negative", the survey did not attempt to
ascertain whether there was any correlation between "negative"
responses and whether the borrowers were denied a HAMP modification.
* Small Percentage of Respondents: The survey results are based on 396
completed counselor surveys. As the GAO points out, it "could not
calculate a precise response rate" because Neighbor Works America,
which administers the National Foreclosure Mitigation Counseling
Program ("NFMC"), could not provide the exact number of counselors and
cannot provide information on the extent to which all NFMC counselors
are involved in HAM' counseling. Even assuming the estimated pool of
3,500 counselors is correct, the survey results are based on responses
from approximately 11 percent of the NFMC counselor population. In
addition, while many borrowers seeking assistance or interested in
filing a complaint may use counselors, some may call the HOPE Hotline,
go to their servicer directly or use other intermediaries. It is also
not clear what proportion of borrowers who have applied for or received
MHA modifications is represented by the survey.
Treasury is committed to improving HAMP to help ensure borrowers'
experiences with the program are positive, and we thank the GAO for
providing feedback and ongoing assessments of HAMP's performance. We
look forward to continuing to work with you and your team.
Sincerely,
Signed by:
Timothy G. Massed:
Acting Assistant Secretary for Financial Stability:
[End of section]
Enclosure II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mathew J. Scirè (202) 512-8678 or sciremj@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Harry Medina, John Karikari
(Lead Assistant Directors); Tania Calhoun; Emily Chalmers; William
Chatlos; Grace Cho; Rachel DeMarcus; Marc Molino; Jared Sippel; Winnie
Tsen; and Jim Vitarello made important contributions to this report.
(250594):
[End of section]
Footnotes:
[1] Pub. L. No. 110-343, 122 Stat. 3765 (2008), codified at 12 U.S.C.
§§ 5201 et seq. The Helping Families Save Their Homes Act of 2009, Pub.
L. No. 111-22, Div. A, 123 Stat. 1632 (2009), amended the act to reduce
the maximum allowable amount of outstanding troubled assets under the
act by almost $1.3 billion, from $700 billion to $698.741 billion. The
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No.
111-203, 124 Stat. 1376 (2010) (1) reduced Treasury's authority to
purchase or insure troubled assets to a maximum of $475 billion and (2)
prohibited Treasury, under the Emergency Economic Stabilization Act,
from incurring any additional obligations for programs or initiatives
that had not been introduced before June 25, 2010.
[2] The Home Affordable Modification Program is the key component under
Treasury's Making Home Affordable (MHA) program.
[3] GAO is required to report at least every 60 days on findings
resulting from, among other things, oversight of TARP's performance in
meeting the purposes of the act, the financial condition and internal
controls of TARP, the characteristics of both asset purchases and the
disposition of assets acquired, the efficiency of TARP's operations in
using appropriated funds and TARP's compliance with applicable laws and
regulations. 12 U.S.C. § 5226(a). Under this statutory mandate, we have
issued three reports on Treasury's use of TARP funds to preserve
homeownership and protect home values. See GAO, Troubled Asset Relief
Program: Treasury Actions Needed to Make the Home Affordable
Modification Program More Transparent and Accountable, [hyperlink,
http://www.gao.gov/products/GAO-09-837] (Washington, D.C: July 23,
2009); Troubled Asset Relief Program: Further Actions Needed to Fully
and Equitable Implement Foreclosure Mitigation Programs, [hyperlink,
http://www.gao.gov/products/GAO-10-634] (Washington, D.C.: June 24,
2010); and Troubled Asset Relief Program: Treasury Continues to Face
Implementation Challenges and Data Weaknesses in Its Making Home
Affordable Program, [hyperlink, http://www.gao.gov/products/GAO-11-288]
(Washington, D.C.: Mar. 17, 2011).
[4] NeighborWorks America was established under Title VI of the Housing
and Community Development Amendments of 1978, Pub. L. No. 95-557, 92
Stat. 2080, 2115 (1978) as a congressionally chartered nonprofit
organization dedicated to improving distressed communities.
[5] [[hyperlink, http://www.gao.gov/products/GAO-11-288].
[6] The survey was conducted through an online member site for NFMC
counselors, which is maintained by NFMC. According to NeighborWorks, at
the time of the survey there were 4,864 registered subscribers on the
site. While the majority of subscribers were counselors, subscribers
also included others such as counseling program administrators and
Treasury and other agency staff. NeighborWorks estimated that about 25
percent of subscribers were non-counselors.
[7] The geographic coverage for counselors responding to our survey was
nearly the same as the distribution of NeighborWorks borrowers' served
in six of nine U.S. Census Divisions. Counselors from the South
Atlantic Division states and Pacific Division states counselor were
slightly less well-represented in our survey when compared to borrowers
counseled in these states, while counselors from the Mountain Division
states were slightly overrepresented. We compared the distribution of
counselors responding to our survey with the overall population of
borrowers served by NeighborWorks counselors as a proxy because
NeighborWorks could not provide a precise number of counselors or their
geographic locations.
[8] The front-end DTI ratio used for the HAMP program is the percentage
of a borrower's gross monthly income required to pay the borrower's
monthly housing expenses which include mortgage principal, interest,
taxes, insurance, and if applicable, condominium, co-operative, or
homeowners' association dues.
[9] The Homeowners HOPE Hotline is operated by the Homeownership
Preservation Foundation (HPF)--an independent national nonprofit that
focuses on helping distressed homeowners navigate financial challenges,
avoid mortgage foreclosure, and find the path to sustainable
homeownership.
[10] Several times in the survey, counselors were asked to select and
rank the first, second, and third most frequent or important response.
These three high-ranked items were counted for each counselor and
summed across all counselors, then divided by the total number of
counselors responding to the question to determine the percentages
reported.
[11] Some counselors did not respond to each question. Thus, we report
the number of responding counselors (N=XXX) when it is other than the
total of 396.
[12] According to NeighborWorks representatives, the HOPE Loan Port may
improve the problem of lost documentation and shorten the decision-
making process. The HOPE Loan Port is a Web-based portal developed by
the HOPE Now alliance of loan servicers to streamline the collection of
loan modification applications, including HAMP applications. Through
March 29, 2011, over 18,000 applications had been submitted through the
HOPE Loan Port with most of the activity occurring after the survey was
administered. Borrowers working through counselors can upload and
directly submit their applications to their servicers. NeighborWorks
officials told us that because the system did not allow incomplete
documentation to be submitted and all documents had to be submitted
together, the portal had largely resolved the problem of lost
documentation for the counselors who had used it.
[13] According to HAMP guidelines, servicers should include nonborrower
household income in monthly gross income if it is voluntarily provided
by the borrower and if there is documentary evidence that the income
has been, and reasonably can continue to be, relied upon to support the
mortgage payment. In addition, Treasury's initial HAMP guidelines
indicate that servicers should include unemployment and other benefits
in the calculation of borrowers' monthly gross income. Beginning August
1, 2011, servicers have been required to evaluate unemployed borrowers
for the Home Affordable Unemployment Program first and are not to
include unemployment benefits in their evaluations for HAMP.
[14] In addition to helping borrowers obtain preliminary information
about their eligibility for MHA programs, including HAMP, the HOPE
Hotline connects borrowers with detailed denial questions or complaints
to MHA Help, a team of housing counselors that work with borrowers and
servicers to resolve escalated cases and complaints.
[15] The HAMP Solution Center does not handle complaints regarding
Fannie Mae and Freddie Mac loans. Each of these two government-
sponsored enterprises has established special teams internally to
handle escalated complaints.
[16] [hyperlink, http://www.gao.gov/products/GAO-11-288].
[End of section]
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