Will New HAMP Rules Work This Time?

The Obama Administration added new help for struggling homeowners Friday who are either unemployed, or owe more than their home is worth. Here’s what’s new:

For the Unemployed

Borrowers can have their mortgage payment reduced to a maximum of 31 percent of their unemployment benefits for as long as six months. In order to qualify, borrowers must:

  • use the home as their primary residence.
  • be currently receiving unemployment benefits.
  • not have a loan greater than $729,000.
  • not be more than 90 days behind on their monthly payments.

For Those Underwater on Their Loans

Lenders are being encouraged, but not forced, to reduce mortgage principal back down to 100 percent of the home value for those who are still current on their payments. Some underwater borrowers may even qualify for a Federal Housing Administration refinance loan.

In 2009 roughly 2.8 million American households received a foreclosure notice, according to RealtyTrac. Currently about 4.5 million mortgages are somewhere in the foreclosure process, including those that are at least 90 days delinquent. The government’s Homeowners Affordable Modification Program (HAMP) has helped 168,000 borrowers get into permanently modified loans since its beginning last year, while it was touted that it had the potential to help several million homeowners.

Part of the problem is that the government cannot force banks to participate, only encourage them with incentives, and apparently those incentives have not been enticing enough.

Then of course, there is the question of whether the government programs are really solving the issues or merely delaying the inevitable onslaught of foreclosures. Does it really matter if a couple hundred thousand loans foreclose now or in six months, if they’re going to foreclose anyway?

At least one economist thinks it does matter. Mark Zandi with Moody’s Economy.com says that spreading foreclosures over a longer period of time will protect house prices from dramatic declines, and will ease the falling prices to a soft landing.

Well, that could be, but we’ll have to see if this program can deliver better on its promises than its predecessor.




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