The Treasury Department is changing the incentives it pays under the Home Affordable Modification Program (HAMP) in an effort to get mortgage servicers to approve modifications of delinquent mortgages more quickly.

Beginning Oct. 1, Treasury is implementing a staged incentives system that pays mortgage servicers considerably more for quickly modifying a mortgage shortly after it goes delinquent rather than allowing the process to go on for an extended period of time.   Presently, mortgage servicers receive an incentive payment of $1,000 for each mortgage borrower that enters into property authorized trial modification under HAMP. Under the new program, servicers will be paid a $1,400 incentive if the modification is completed within 120 days of the mortgage falling delinquent. That shrinks to $1,200 if the loan is 121-210 days past due, and drops to only $400 if the modification is approved more than 210 days, or roughly seven months, after the loan becomes delinquent.   The new incentives apply only to mortgages that are not held or backed by a government-affiliated entity, such as Fannie Mae, Freddie Mac, the FHA and VA, which have or are in the process of revising their own loan modification incentive programs.   The Treasury Department has been trying to encourage mortgage servicers to take a more proactive approach toward modifying mortgage for homeowners in financial trouble, including pressuring them to reach out to borrowers as soon as they begin missing mortgage payments. According to Treasury estimates, there are more than 1 million homeowners currently delinquent on their mortgages who would qualify for HAMP, but only 127,000 enrolled in active trial modifications.   HAMP generated strong interest among homeowners when it was launched in spring 2009, averaging more than 100,000 new trial modifications a month during the program’s first year. However, many of those early enrollees were subsequently found to be ineligible for the program and were never approved for permanent status.   The Treasury Department tightened documentation requirements for homeowners to be approved for trial modifications and most of the subsequently enrollees have successfully transitioned from trial modifications to permanent status. At the same time, new enrollees in the program have fallen off, to a level of about 30,000 new trial modifications a month over the past six months.   To date, there have been 1.6 million homeowners who have begun trial modifications since HAMP was launched, but fewer than 634,000 remain in permanent modifications.

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