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Monday
Jul122010

Home Affordable Modification Program 

The Home Affordable Modification Program (HAMP) is a federal program that was created to help prevent mortgage foreclosure in California and other states that suffer economically.  The hope was that HAMP would reduce the losses that the lenders and the federal government would incur. 

Banks Required to Participate to Prevent Mortgage Foreclosure (California)

Banks receiving the bailout funds are required to participate in the Home Affordable Modification Program in order to help prevent mortgage foreclosure in California and the other states heavily impacted by the real estate lead recession.  Regrettably, it appears that lenders are attempting to benefit from the stimulus funds, and at the same time, shift their losses onto homeowners, and with fees, penalties, and by collecting payments from families participating in HAMP’s loan modification program without granting them permanent loan modifications.  This strategy can hardly prevent mortgage foreclosure (California).

Bank Behavior is a Barrier to Preventing Mortgage Foreclosure California

At the end of 2009, only 2,000 homeowners (less than 1%) had been granted a permanent loan modifications from over 650,000 total applicants. The other applicants were placed in trial modifications only, which required them to make their monthly payments, without ever receiving final approval.  According to the Fitch rating agency (they rate the banks’ performance), the average loan modification payment was 64% of pre-tax income.  As a result, many homeowners are becoming increasingly agitated by the banks because their saving are being eaten-up by the payments.   Additionally, many homeowners have been cut from the program on technicalities despite having made the high monthly payments that were required.

The HAMP program is seen by most as a complete failure.  The only winners are the banks who seemingly deceived the homeowners to get the extra payments from them.

Recently, a prominent law school has shown how the federal government and lenders are engaging in a campaign of guilt and fear to coerce families into continuing or resuming their monthly payments.

  • The lenders are not willing to accept the financial losses that would result from permanent modification, despite having received federal bailout monies. 
  • Some lenders are even developing strategies to increase the penalties and fees revenues from non-performing loans.
  • For homeowners that clearly cannot afford their loans, it appears evident that many lenders are attempting to get as much money from the applicants as possible before foreclosing.  This approach also keeps the property occupied (reducing vandalism), and yields some revenue for the lenders.

 What the Obama administration is quickly learning is that the federal government cannot easily legislate regulations that modify contractual agreements in the private sector.  The banks are playing hardball with the homeowners (and the federal government).

 In the final analysis, lenders are operating for a profit.  Their values are very different from the government, who does not operate for a profit.

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