According to loan modification expert David Ramos, prior to the proliferation of subprime loans and the mass securitization of mortgages, “the loan modification system was a lot more simple.” The process required a homeowner to contact the mortgage servicer to work out an agreement to change the terms of the loan.
During the years leading up to the housing market collapse, banks and other entities started packaging these loans and selling them to investors as mortgage-backed securities. Loans that could previously be traced back to the mortgage lenders were now owned by Wall Street investors, which greatly complicated the traditional loan modification process.
When these mortgages soured and the default rate skyrocketed, the event contributed to the financial crisis that occurred in 2008. Subsequently, taxpayers’ bailed out of big banks to the tune of $750 billion.
In March 2009, the Obama Administration introduced the Home Affordable Modification Program (HAMP). After the first year results of HAMP filtered in, it became obvious that the program was not working as intended.