Thursday, March 31, 2011

Why did HAMP fail?

In 2009, the Obama Administration introduced a government program for struggling homeowners called the Homeowners Mortgage Assistance Program(HAMP). This program had two purposes: 1. reduce interest rates for high interest or interest-only mortgages for homeowners current on mortgage payments and 2. provide loan modification assistance for homeowners who had fallen behind on payments or at risk of foreclosure. The House this week killed funding for HAMP, although Senate passage is unlikely. In addition, 50 House Democrats wrote Treasury Secretary Timothy Geithner urging him to reform HAMP. Why is reform needed?

3.4+ Million homeowners were suppose to benefit from this program, but after 2 years, the population of an average size professional football stadium (approximately 500,000 homeowners) have been assisted successfully. I've heard valid arguments from Democrats and Republicans about the need to complete or delete the program; they don't understand that the HAMP failure lies with the implementors: the banks and mortgage companies.

The same banks that were bailed out from the 2008 crisis are now asked by the government to give homeowners the grace of a fixed interest loan or a small interest loan modification. Some of these homeowners endured unemployment or bad credit in order to stay current with the necessities of food, shelter, clothing and utilities -- forgoing the luxuries of credit card shopping (and paying credit card bills). The banks and mortgage companies do not recoup an advantage on a 6-month loan modification when a 12-, 18-, 24-month loan modification is more profitable. Banks cannot sell the foreclosed property, so why not let it draw more interest until the market is favorable.

House Representatives and Senators are unaware of the viscous cycle that begins with falling behind 2-3 months on mortgage payments. An homeowner may have at least 1 month's payment available to apply to the present mortgage. A reimbursement program is introduced after filing an income/expense worksheet. The homeowner waits until receiving approval and sent paperwork to return the payment as a money order or certificate of deposit. The homeowner may not receive the paperwork until after another month has past. The bank or mortgage company may state that the paperwork was returned without a valid address and the homeowner is disqualified for the reimbursement program. Next, another income/expense worksheet is performed for the entrapment of a loan modification. This is promoted to homeowners like a used car salesman. "The current loan interest rate will be reduced significantly, while we process an additional loan on what is owed". This is trouble on a runaway train that no one can get off of.

Homeowners do not want to pay anymore interest! Homeowners don't desire another entry on a credit report! Homeowners don't look forward to paying another mortgage on their property! There is no advantage in killing one mortgage with two loans.

A favorable statistic to acquire is how many homeowners remain in the HAMP process and how many were rejected. It is my speculation that approximately 1 million homeowners remain in the cycle of attempting to qualify for a program that the banks and mortgage companies do not wish to implement. Banks and homeowners are stuck; homeowners can't pay, banks can't sell.

1 comment:

  1. Excellent article, great explanation of one of the ways the govt contributed of the housing crisis. Apparently, banks can get bailouts, but homeowners can't. Every politician who voted against this bill should be out of out come November 2012. Thanks again great article.