DS News

45 » VISIT US ONLINE @ DSNEWS.COM Mark McArdle is the Deputy Assistant Secretary of Financial Stability for the U.S. Department of Treasury. In his role, McArdle leads the Office of Financial Stability (OFS), which oversees the Troubled Asset Relief Program (TARP), including its remaining investment and homeownership preservation programs, and advises the department on housing finance reform matters. In his previous role with Treasury at the Office of Financial Stability, McArdle played a key role in policy development for the Home Affordable Modification Program (HAMP), which began in 2009 in response to the financial crisis. With HAMP set to expire at the end of this year, McArdle discussed with DS News some of the highlights of the program over the past seven years. Now that HAMP is seven years old, how would you measure the progress of HAMP against the goals the Administration originally set for the program? I think that by any measure, the program has been a success. When you look at the numbers you see the 1.8 million families who have been assisted through 2.3 million assistance actions taken on their behalf. en you look at millions of additional homeowners who have been helped because of the changes made by the industry to align their practices to those established by HAMP. ese changes include the way in which homeowners are reviewed and evaluated for assistance and the use of affordability standards. We also introduced practices such as giving homeowners a single point of contact (SPOC), and restricting dual tracking of modification and foreclosure, which have since been adopted by the Consumer Financial Protection Bureau (CFPB) and became industry norms. And, as time goes on, I think that we will see the industry continue to use the other tools from what really is a HAMP tool kit. ese include programs such as the principal reduction alternative, which showed how principal reduction can affect the performance of modifications. We introduced a second lien modification program, which was based on the premise that if a homeowner has a delinquent first loan, then their second lien should also be modified, as well as post- modification counseling. We hope that these tools will continue to be used by the industry to help struggling homeowners in future years, and that future policy makers will utilize our robust dataset to learn from our successes and our challenges. Barring Congressional action, HAMP will expire on December 30, 2016. What comes next? ere have been a lot of conversations throughout the industry on what comes after HAMP. We're trying to play a positive role there, facilitating those conversations so that the industry and other stakeholders can think about and discuss how standardization might help homeowners who go delinquent in 2017 and into the future. ese conversations are exploring questions such as whether a common application would make sense, or how loss mitigation programs could be standardized, so that homeowners could avoid the confusion they faced before HAMP when every servicer had a different loss mitigation program that varied significantly by investor. Our goal is to try and increase standardization and transparency in whatever comes after HAMP. Can you update us on the progress of initiatives to help HAMP homeowners avoid potential payment shocks that may occur when their modification resets? e good news is we've been closely tracking the performance of HAMP loans since the program started, and to date, we have not seen a significant impact of the interest rate step-ups. We've had approximately 18 vintages—that's modifications commencing in 18 separate months—that have reached their first step- up, and we have not seen a measurable impact on performance. We've even seen thousands reach their second step-up and we still have not observed a noticeable impact. ese are important things to look at as time goes on, and as the industry creates its own norms. Is a modification that lowers the interest rate significantly and then steps up to a market rate sustainable over time? e evidence is not all in yet, but so far it's looking good. We also believe that the measures we put in place over the past two years or so are contributing to a homeowner's ability to handle the step-up and higher payment. First, we require every servicer to notify homeowners at two separate points in time — one at least 120 days in advance of the first increase, and the second one 60 days before the first increase. Second, we have been a strong supporter of post-modification counseling and now require servicers to offer counseling to folks who are at risk of default on their modification. Finally, we implemented a suite of enhancements to the programs, including increasing the six-year incentive for performing homeowners, and improving the HAMP Tier 2 modification, which can be used as a tool for folks having trouble with the step-up as well as a Home Affordable Foreclosure Alternative (HAFA) short sale or deed-in-lieu of foreclosure. What do you think will be HAMP's lasting legacy? One of the lasting legacies of HAMP is that modifications can work long- term. Before HAMP, the general perception was that modifications were just kicking the can down the road and that they weren't sustainable. e performance of HAMP modifications demonstrates that if the modification is focused on payment reduction and long term success, then the modification will be a sustainable alternative to foreclosure. After the benchmark of 24 months, overall 75 percent of HAMP modifications continue to perform. For recent vintages, it's as high as 83 percent. So basically, four out of five homeowners are performing after two years. We also see that the longer folks stay in their modification, the more likely they are to remain current in the future.

• Cover