Total HAMP activity in the Chicago region grew from 42,303 to 42,694 from October to November 2011, an increase of only 0.92 percent (see figures 1 and 2). The number of Chicago region active HAMP modifications grew by 26.3 percent from November 2010 to November 2011. Permanent modifications grew by 1.8 percent from 37,967 in October 2011 to 38,671 in November 2011, which is an increase of 47.7 percent from November 2010. At the same time, trial modifications dropped by 7.2 percent from October 2011 (4,336 modifications) to November 2011 (4,023 modifications), and fell by 47.2 percent from November 2010. From November 2010 to November 2011 nationally, there were somewhat greater increases in permanent modifications (up 48.8 percent)and slightly smaller decreases in trial modifications (down 5.7 percent) than there were in the Chicago region.
As the slow pace of new modifications shows, servicers are not taking advantage of the final months before HAMP winds down at the end of 2012. The Special Inspector General for TARP estimates that up to 600,000 HAMP-eligible homeowners will not receive a permanent modification before HAMP ends. While servicers have touted their in-house modifications as a complement to HAMP, new data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision show that proprietary modifications—which re-default almost twice as often as HAMP modifications—are significantly slowing as well. The OCC and OTS report that new non-HAMP modifications have fallen by 52.2 percent from the third quarter of 2010 to the third quarter of 2011, while new HAMP modifications have fallen by 8.4 percent.
Many homeowners still need help, and the dwindling pace of public and private home retention efforts is insufficient to meet their needs. The issue of negative equity continues to go largely unaddressed by existing policy options. While 10.7 million households are under water, the optional Principal Reduction Alternative (PRA) portion of HAMP has resulted in just 36,454 permanent modifications that involve writing down principal throughout the nation. Efforts to address negative equity are significantly hindered by the fact that the FHFA has a blanket policy against allowing principal reductions on loans guaranteed by the GSEs. The FHFA argues that principal reductions would increase the risk taken on by the GSEs, but, as a recent Federal Reserve white paper notes, “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.” Just as President Obama exercised his ability to make a recess appointment of Richard Cordray as the director of the Consumer Financial Protection Bureau, he should replace the FHFA’s head Edward DeMarco with someone willing to take action to stabilize the housing market, which would ultimately help communities and taxpayers alike.