House Votes to End HAMP Program

By Frank Verni

Last week the House voted to kill and stop any new funding for the Home Affordable Modification Program (HAMP) calling it totally ineffective. This was a key program that was put in place by President Obama in early 2009 to help 4-5 million homeowners stay in their homes and avoid foreclosure… however it has only helped less than 500,000 – a little more than 10%. The current group of applicants to the program has dwindled to less than 200,000. Nobody’s really using HAMP anymore; over its lifespan, twice as many proprietary modifications have been given out by the largest bank servicers, and they have been pretty stingy with those.

The program taps the federal bailout that saved the big banks, providing incentives to mortgage servicers to modify mortgages for borrowers behind on their payments. What makes the HAMP program different is the widespread criticism it has received from both Republicans and Democrats for being ineffective. It’s really one of the deep failures of the Troubled Asset Relief Program (TARP) which wasn’t supposed to just help the banks return to profitability (which most have), it was supposed to help people stay in their homes and that just has not happened.

As I think about this for a minute I ask a simple question – What the heck are these guys in Washington smoking? During this housing crisis many programs have been put in place and voted into law by people that have very little understanding of what is actually happening in this market. The housing crisis is what caused our current economic mess and yet the attention given and the programs in place has been anemic at best. The reasons for the failure of HAMP are as clear as the nose on my face:

  • The program was not mandatory – all it did is set guidelines that banks did not have to necessarily follow
  • With unemployment so high and hours worked reduced, it made it extremely difficult to meet the financial requirements to qualify.
  • It was not required that a homeowner be late with mortgage payments – yet most banks told homeowners that that they would not even be considered unless they were 2-3 months late
  • In most cases, the program did NOT reduce the principal amount due to within reasonable market value. Also missed payments and fees were added. While the mortgage payments might be reduced, the value still remained underwater in many cases by over 40% especially in the hard hit areas of California, Florida, Arizona, and Nevada.
  • The average modification was approximately $500/month. In many cases the new payments were sometimes even higher especially for people with interest only or option arm loans.
  • The banks DID NOT properly train their personnel – many cases of wrong information given out, files being lost numerous times, trial modifications that were not given final approval, and the timeframes to get answers took many, many months. All the while, the foreclosure process continued. The banks are good at giving false hope to the homeowner

I completely agree that this program has absolutely been a huge failure. However my next question is what options will this leave for the still troubled homeowners that may want to stay in their home. The HAMP program is set to expire in December, 2012 or sooner if Congress has its way. So this is a failed program which very few people still use because they’ve learned it’s a predatory lending scheme. It’s being rolled back, saving basically no money, in one house of Congress, with no hope of action in the other house and a veto by President Obama. … so I just continue to be confused. This is a very difficult housing market to fix but the banks and lawmakers that had a big hand in causing it must step up to the plate and make the changes necessary to fix it so it actually begins  to make sense or just end the misery.

One of the most viable options that will still is available for homeowners is to short sale their home and get out of this mess. In fact, a good portion of the 75 Billion dollars that was allotted to the HAMP program has been moved over to the Home Affordability Foreclosure Alternative program (HAFA). This program allows the property to be sold at market value with a lot less credit impact to the homeowner than a foreclosure. In fact, in February of this year, the guide lines for approval have been greatly improved allowing for shorter timelines and a quicker process. Homeowners under this program can even qualify for $3000 in relocation assistance.

Most folks are beginning to consider this option more often because it allows them to get out from under the huge debt of a property that will take many years to regain its value. With a short sale, a person can rent for the next 2 years and then re-buy a similar home down the street for the current market value and pay a lot less in payments each month. Over the next 10-15 year period, the financial gains can exceed hundreds of thousands of dollars.

Regardless of what happens, all of the current programs will end in December, 2012 so it is extremely important that homeowners do something NOW. One in eight homes throughout the USA is currently underwater or in some form of distress so it is important that they take control now because if they do nothing, a foreclosure will surely occur.