Mortgage modification: What’s the legacy?

The federal Home Affordable Modification Program (HAMP) seemed like a big deal in 2009, a way to pull homeowners back from the brink by working out short term deals to cut monthly payments.

The hope was it would cut people the slack they needed to keep their homes during the worst recession in decades.

Two years later, though, there's a wide gap between what the government says has been accomplished and the practical stories we hear about the program failing to live up to expectations.

Count Missi Casey as one of those who say the pain of loan modification wasn't worth the help it provided.

Casey, a Minnesotan in MPR's Public Insight Network, emailed us last summer that she'd gone through HAMP to stave off a possible foreclosure on the Twin Cities house she grew up in and had owned the past three years.

Her view: "It was awful." She wrote us:

We had a baby in April 2009 and I had to cut back on my hours at work so it made our mortgage payment nearly impossible. We were advised to do the loan modification rather than a traditional refinance... The process took about 15 months to complete and was so stressful that it probably took 10 years off my life.

We had never missed a payment on our mortgage, but due to

the banks system, we began receiving foreclosure notices about 6 months into the modification process.

Our credit scores also dropped significantly during this time and credit cards began lowering our credit limits. The payment we were told our mortgage would be modified to was originally very manageable for us but near the end of the process they raised it - I'm still not sure how or why they did that.

"Overall," she added, "the process caused us horrible stress and ultimately only ended up saving us like $75 per month."

In two years, slightly more than 10,000 Minnesota home loans were permanently modified via HAMP. But you'd be hard pressed to find evidence that it buoyed the market.

Minnesota saw some 25,673 foreclosure sales in 2010, up 11 percent from 2009 and close to the peak in 2008, according to data collected by the Minnesota Home Ownership Center (click on the chart for a larger view).

Also, more than one in five Minnesota houses with a mortgage is underwater ( debt owed on the house is greater than the house's current value) or near underwater, according to data compiled by the research firm CoreLogic, a stat that's changed little in the past nine months.

So if you're looking for evidence that HAMP helped turn things around, it's not there.

We came back to Casey recently to see if her perspective had changed. It had not.

"The biggest problem since the modification is that it severely affected our credit," she told us.

It temporarily brought our credit scores down, which prompted our credit card companies to lower our credit limits, even though we never missed any payments...

Because they lowered our limits, it looks like we've maxed them all out, which is now causing us problems when we go to apply for new lines of credit.

We are also still paying more than what we can afford for our mortgage, but I'm sure we will be unable to refinance any time soon due to our credit issues.

"I think we were wrongly advised to do the modification and would only recommend it to someone who is actually in foreclosure," she added. "I'm sure some people may really benefit from the modification option, unfortunately just not us!"

We asked Ed Nelson with the Minnesota Home Ownership Center if Casey's experience was unusual. The center is a non-profit group that's been busy the past few years trying to help people keep their homes.

"We're constantly hearing similar stories from our counseling network," he said.

Some homeowners fly through the process with only minor speed bumps, for others the modification process can be long, extremely frustrating, and sadly, may not have been the best answer for them in the first place.

That's why we always recommend that someone sit down with a non-profit foreclosure prevention counselor. The counselor can help set expectations, help with paperwork, mediate with servicers (in some cases) and even talk about the advisability of choosing one option over another.

Nationwide, HAMP is expected to cost the Treasury $22 billion when finished. That's a lot less that was initially expected. But how do we judge if it was a success?

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