HAMP Hampered

by Ron Daly 

The successes of President Obama's financial programs have been debated by pundits for the past year or so. Some say that progress is naturally slow in recovery and that the seeds of these initiatives will bear fruit for years to come. Others say that the programs have not helped enough in the short term to warrant their continued support. 

One program being debated currently is the Home Affordable Mortgage Program, or HAMP. A recent story from ABC News talks about the program - its proponents, its opponents, and its short-term success. 

Watch the video below. [EMAIL READERS - please visit the website to view the video. Flash player required.]

According to the online version of the story, only 116,000 homeowners have taken advantage of the $75 Billion program thusfar. Only 116,000 on a program designed to help 2 million? Why? Because bankers won't help customers and would rather foreclose. This has led some lawmakers to call the program a "failure" and has prompted the Treasury to suggest a stronger hand. If the Treasury and the Obama Administration had their druthers, banks would be required to see if homeowners qualified for HAMP help prior to foreclosure. Banks would only be allowed to begin the foreclosure process after a borrower had been officially unqualified. 

From the ABC story:

The new proposal would prohibit "referral to foreclosure until borrowers is evaluated and found ineligible for HAMP or reasonable contact efforts have failed," according to the Treasury document. It would also require "servicers to stop all foreclosure action once borrower is in a trial period plan." 

Eligibility is a sticking point in the program. 1.7 million borrowers were believed to be eligible for HAMP help, yet only .6% (note: that's "point-six-percent", not six percent) have received aid. This Washington Post article suggests there are more factors at play than banks' willingness to lend. 

 Lender resistance or incapacity explains only part of the shortfall; many borrowers failed to supply required documentation because it might show they had overstated their income to get a loan -- i.e., that they had not, indeed, "played by the rules."

Meanwhile, because of stubbornly high unemployment, the rate of redefault on modified loans is likely to be high -- 70 percent based on recent experience, according to a recent report by Standard & Poor's. 

Bank of America has reported a surprising upswing in the number of HAMP modified mortgages held by their institution. Clearly, a few troubled homeowners are receiving the message and taking the extra steps to avoid losing their home. Mandate the qualification process prior to foreclosure and we're helping that many more.

I haven't heard of any credit unions foreclosing on a member rather than HELPING that member, have you?

I'm all for calling off foreclosures and making the banks modify loans under HAMP. If the borrower qualifies, they get a last shot at a modified mortgage and home ownership. If they don't qualify because they committed fraud on their application or simply couldn't meet the standards, then start the process. How else will we stop the plummeting housing market?

We welcome your input as always.