Is HAMP Working?

Last month the Obama administration proposed changes to HAMP, the Home Affordable Modification Program. Proposed expansions to the program include helping underwater borrowers with principal reductions and even provisions to help the unemployed. While the concept of the program may sound good, its overall success so far has been dismal. The program is supposed to help struggling home owners, who otherwise might have to foreclose, be able to stay in their home. To date the program has helped just a small percentage.

RealtyTrac, an online marketer of foreclosure properties, reported that 930,000 foreclosures were filed in the first quarter of 2010. This is a 7% increase over the previous quarter and a 16% increase over the same time period last year.

Meanwhile, HAMP as of March has only helped permanently modify 228,000 home loans with just an additional 108,000 pending. With around 6 million homeowners more than 60 days behind on their mortgage payments, it certainly makes people question the effectiveness of the government program.

The congressional oversight panel of the program in its latest report found:

For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes. It now seems clear that Treasury’s programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble.

To make matter worse some major banks are not buying into program changes. JP Morgan and Wells Fargo do not totally agree with HAMP’s proposal to reduce principal balances on loans that are underwater. They are not planning to fully participate in the program and caution against it.

“There are certainly individual cases or even segments of borrowers where principal reduction may be appropriate,” said David Lowman, chief executive officer for home lending at JPMorgan Chase. But “broad-based principal reductions could result in decreased access to credit and higher costs for consumers, because lenders will price for principal forgiveness risk.”

Critics of HAMP say it is not making progress fast enough. They are also quick to point out that the program is not fool proof. To date 155,173 people who had their loans permanently modified through the program have defaulted. As of February there had been 88,863 defaults and in March an additional 66,310 were reported. These are clearly not the statistics program supporters are hoping for.

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