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Problems Continue with HAMP and Federal Mortgage Programs — Is HAMP Dying?

hamp-activity [1] 
Written by Craig D. Robins, Esq.
 
HAMP Not Working As Planned
 
Recent figures show that only a small fraction of homeowners are seeing any kind of permanent relief under the federal Making Homes Affordable Program (HAMP), and fewer consumers are applying for the program, leading one well-known economics blog to suggest that the program is dying.
 
Thus, a major effort by President Obama’s administration to assist homeowners and keep them out of foreclosure appears to be failing.
 
On Monday, the government issued data showing that HAMP only helped 300,000 defaulting households obtain permanent relief by way of new loans.  Yet, there appear to be over four million households in danger of losing their homes through foreclosure. 
The government previously estimated that HAMP would help 1.7 million households.
 
I Just Received a Call from a Typical Frustrated HAMP Applicant
 
Yesterday, I received the umteenth complaint from a Long Island homeowner, struggling to use HAMP to save their home. 
 
The homeowner, who lives in Medford (Suffolk County), complained that they applied for HAMP; they were approved for the trial program; they made regular monthly mortgage payments during the trial period for almost half a year while trying to provide all of the requested documentation; they did provide all of the docs; they were then turned down.
 
Understandably, the homeowner was not happy.  Yet, this seems to be a regular occurrence with HAMP applicants — they apply; they make their payments; many encounter difficulties with their lender; they are ultimately turned down. 
 
This led me to write a blog post over two months ago — WARNING: HAMP Can Drive Homeowners Into Bankruptcy [2].  Sometimes it doesn’t even make sense to try to make the program work when you can just stay in the home for a period of time and eliminate all liability on the mortgage through a Long Island bankruptcy filing.
 
Fewer Homeowners Are Now Applying for HAMP Assistance
 
The New York Times just reported yesterday that the number of homeowners that enrolled in the trial phase of the HAMP program in April 2010 was only a about a third of the number who signed up in September 2009.
 
The article suggested that a key reason for the reduced interest in HAMP may be that many homeowners are feeling that it is more financially advantageous to default, pay nothing to live in their home for a substantial period of time, and then just walk away from the home. 
 
This is what’s called ‘strategic default” — which I wrote about at length just last week — Strategic Mortgage Defaults Increasing [3].
 
One Popular Financial and Economics Blog Says HAMP is Dying
 
Yesterday, the Calculated Risk Blog [4] reviewed the slow-down in HAMP applications and came to the conclusion that HAMP is dying. 
 
The above-chart is courtesy of the Calculated Risk Blog.
   
Another Possible Reason for HAMP Denial — Insufficient Income
 
It seems that a lot of homeowners applied for the program, only to be declined later on — after their income was verified.
 
Apparently, many mortgage servicers who were administrating the HAMP program on behalf of the mortgage company did not bother to verify income at the beginning of the trial period, and only did so towards the end.
 
Had they done so early on, they would have learned that a good number of applicants did not have sufficient income to make the program work, and they could have alerted those applicants right away, rather than giving them false hope.
 
Consequently, the administration is now requiring mortgage loan servicers to verify income at the beginning of the application process, rather than at the end.
 
Homeowners:  Think Twice About Applying for HAMP
 
Even if a homeowner gets approved for a permanent HAMP modification, they only stand to save $500 a month.  For those living on Long Island where the cost of living is high, saving just $500 a month can be just a nominal amount.
 
Any homeowner considering a HAMP remedy should be very wary about slightly lowering their monthly mortgage payments if they will nevertheless continue to struggle under a very high debt load.
 
For those homeowners who would still like to explore HAMP and get additional information, please see this post:  Seeking HAMP (Homes Affordable Mortgage Program) in Bankruptcy — Eight Things to Know [5].
 
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