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The Obama administration’s Home Affordable Modification Program has been touted as a savor of distressed homeowners across America. The problem is that the numbers show an entirely different story.
More than 650,994 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of last month, from about 487,081 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, the Treasury data showed.
None? NONE! Not a single one! WTF!
Five months and 651,000 trial modifications and not one single borrower can get a permanent break? We throw hundreds of billions of dollars at these TARP banks and they can’t cut a single distressed homeowner some slack?
These “trial” modifications only last 90 days, so its not like there hasn’t been thousands of mortgage holders who have tried to turn it around, and the banks then rejected.
Robert Davis, executive vice president of the American Bankers Association in Washington, said yesterday that unemployment is “the primary driver of defaults right now.” He said he was “puzzled” by the stepped-up pressure.
One purpose of the trial period “is to protect the taxpayer by making sure these loan modifications will work before anything is paid out to the lender,” Davis said. “Suddenly, for that to become a measure of bad performance when institutions are doing everything they can, is just baffling.”
Just baffling that anyone would expect anything in return from the banks after we saved your asses from joining us on the unemployment line.
The problem with HAMP is that it doesn’t require anything from the banks other than the appearance of making an effort.
While the HAMP program has managed to slow down the foreclosure crisis, it hasn’t done a thing to stop it. HAMP, and various state moratoriums on foreclosures, are merely pushing the foreclosures crisis down the road a little.
Hundreds of thousands of people are living in their homes for as long as a year without being foreclosed on. While that is good in the short-term, the chances of these people not being eventually foreclosed on is zero.
The next implosion that will soon hit the housing market is the Option-ARM problem.
According to a recent report by Standard and Poors, 93% of all Option-ARM mortgage borrowers elected for minimum payments. These minimum payments were negative amortization, thus not even covering the interest payments on their mortgages.
Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating. And many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become standard amortizing loans. Additionally, some newer loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.
The recasting of these mortgages are going to dramatically raise payments on hundreds of thousands of homes that are heavily underwater.
Let’s say you have an 30-year Option-ARM loan with five years of negative-amortization payments on the front end. After the five years is up your mortgage not only adjusts to a fully amortizing loan on a much larger mortgage, but also to one that now must be paid off in 25 years rather than 30 years.
78% of all Option-ARM mortgages haven’t recast yet.
Homes that are so deeply underwater are not eligible for even HAMP.
Another problem with these Option-ARM mortgages are that so many of them are stated-income loans made during the housing bubble. Stated-income loans are now being called “liars loans”.
If all this talk about the failure of HAMP sounds familiar, it should. It was the exactly same problem that Bush’s HOPE Program ran into a year ago.
Even before it got started, the program – called Hope for Homeowners – was looking like a lead balloon.
Under the program, the government will insure up to $300 billion in new, more affordable loans for troubled borrowers. For the insurance to kick in, however, lenders must first voluntarily refinance the delinquent mortgages by reducing the loan balances to 90 percent of the home’s current market value.
In exchange, lenders would avoid the expense of foreclosure and uncertainty about being repaid. The government would stem the social and economic damage of more foreclosures, at presumably little risk to taxpayers.
There’s just one problem. At a Congressional hearing in September, lenders were lukewarm about participating in the new program – reluctant, it seems, to take the loss that comes with reducing loan balances.
As home prices fall, the most effective modification is to reduce the loan balance; otherwise, borrowers are in the position of repaying a loan higher than the value of the property. That burden can become unbearable when combined with unemployment or reduced work hours or unexpected expenses like medical bills.
The banks refused to write off even 10% of the mortgages, despite getting a generous taxpayer subsidy if they did so. Given that, what hope does HAMP have in its current form?