Pluses and Minuses of the HAMP Loan Modification Program

The Home Affordable Modification Program (HAMP) has been something of a disappointment nearly from its inception. After loudly touting the program’s ability to help 4 million borrowers, the current administration was forced to concede it had barely helped a fraction of that number and some advocates and administrators in the program actually came right out and declared the program to be a failure. However, in recent months, there has been a lot of discussion about how HAMP is finally gaining momentum.  Hundreds of thousands of borrowers are getting the loan modifications that they desperately need. There is another, untold aspect of the story however. The untold story is that many home owners are defaulting on the modified loans. Sometimes the default is literally just a few months after modification.

According to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), of the roughly 1.2 million mortgage modifications made through HAMP since its inception in 2009, 306,000 have re-defaulted.  This is a default rate on modification of over 25%. It is either good or bad..…it depends upon how you want to look at it.

 Furthermore, homeowners who entered the HAMP program in 2009 are re-defaulting at a rate of 46 percent. This statistic seems to be very alarming. “The Treasury needs to research why so many borrowers are dropping out of the program,” said head of SIGTARP Christy Romero. Her agency’s report indicates that homeowners who received only small reductions in their loan payments or overall debt, were still underwater on their mortgages, or had subprime credit scores and high overall debt at the time of modification were most likely to default. As of the end of April of 2013, taxpayers had lost roughly $815 million on permanent HAMP modifications that had re-defaulted.OUCHHHHHHH The U.S. Treasury originally allocated $19.1 billion to HAMP and, so far, has spent $4.4 billion. HAMP was recently extended to 2015.

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro

 

Principal Reduction in Loan Modifications

Well, it seems there is a bit of hypocrisy coming out of Washington for a little change of pace. President Obama announced his nomination of congressman Mel Watt (D-NC) for director of the Federal Housing Finance Agency (FHFA).  Many homeowners around the country were delighted by this selection because Congressman Watt has a history of supporting principal reduction in loan modification programs.

The hope is that he will continue this position during his tenure as head of the FHFA. Current acting director of the FHFA, Edward DeMarco, has refused to allow Fannie Mae and Freddie Mac to include principal write-downs in their loan modification arsenals. Demarco argues that the practice not only jeopardizes the American taxpayers, but also rewards poor payment history and sets a bad example. Now Watt could be causing problems in this area himself. During his confirmation hearing in the Senate last week, Watt said that while he would not preemptively refuse to engage in write-downs, he also would not endorse the policy. Instead, he promised to “study carefully how that decision [to not do write-downs] was reached, what it was based on, and then I would build on that new information…and make a responsible decision.”

Not surprisingly, Watt’s apparent reluctance has upset many home owners who believed that he would definitely approve the controversial measure to engage in principal reductions as part of a loan modification program. He has been accused of backtracking and failing his constituents. This is particularly alarming since Watt was a vocal critic of DeMarco’s policies as a congressman. Watt responded that while it was his responsibility to support write-downs as a congressman because he had many underwater borrowers in his district, as director of the FHFA he would have to be “a strong advocate for taxpayers”. Watt is likely treading lightly around this issue because one presidential nominee to replace DeMarco has already been blocked.

As my Mother was known to say, “We will see what we shall see”

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro