The government’s Home Affordable Modification Program (HAMP) to help reduce mortgages for borrowers to lower their monthly payment has more than fallen short of its objectives. HAMP has now been labeled a huge failure and although millions of homeowners around the nation have applied for this assistance, only very few will actually be approved for a permanent modification.
Government officials seem to be surprised about the lack of progress this program has displayed. However, all along, the program’s terrible structure was doomed for failure. According to most major media sources, missing documents and lack of communication are some of the most common excuses as to why so many people are kicked out of this program.
When a prospective home buyer goes to take out a mortgage, typically the mortgage only covers part of the value of the property (ie the property is actually worth more than what is loaned). This means that if a homeowners happens to default on their monthly obligations, the lender can foreclose on the property and sell it at auction to make up for the amount owed.
However, what most homeowners are now aware of is the fact that home prices have plummeted dramatically since 2007-2008, leaving about 20% of the nation’s mortgages underwater. Being underwater means the property now is negative in equity.
Without any equity in your home, homeowners strapped tight on cash are not able to refinance their mortgage and take cash out for other obligations that need to be taken care of. Therefore, many people are left with no choice but to pursue a loan modification, file bankruptcy, or end up in foreclosure. Obviously, the first choice for a majority of homeowners in this situation would be to apply for a loan modification to help lower their current monthly payments.
While the housing market was taking a devastating hit, the labor market also had the biggest downturn in decades, leaving more than 10% of Americans unemployed or underemployed. In some areas the jobs are so scarce you will find up to 15% or more of the population without a job. Due to a state of financial shock and a foreclosure tidal wave storming the beaches, the HAMP program was announced by the Obama Administration in March of 09.
The Home Affordable Modification Program was designed to encourage mortgage servicers to reduce mortgage payments, so that a homeowner’s total monthly mortgage payment (principal, interest, taxes and insurance included) equals no more than 31% of their gross monthly income. the payments are generally reduced down to about 2-3% interest rate for the first five years, and will gradually work it’s way up to a 4-5% fixed for the life of the loan.
Before a borrower is able to achieve permanent assistance under this program, they must first go through a three month trial period making reduced payments. According to the program guidelines, if a borrower is able to make all three trial payments on time and their situation has not changed from when they applied for the program, permanent assistance should be offered. We here at LoanSafe.org has found this to be far from the truth as we have observed hundreds of borrowers go through this program for many months just to be denied permanent assistance. Also, what is supposed to be a three month trial period, has turned into a 6-10 month trial period hell for most people that are approved for this program.
We know for a fact that a majority of these servicers are very overwhelmed with modification requests and also hire reps that are untrained in this industry and do not know anything about modifications, but who will ever admit to this… Definitely not these big banks who are swindling billions from Americans. In addition to many servicers not following this program, the government only made HAMP as a voluntary program and not an actual law/rule lenders are forced to abide by. Hence, there is nothing in place to encourage/force lenders to offer this assistance, except a very small incentive for them.
When this program first came out, many lenders would qualify borrowers for the trial period based off over the phone information or would just send them a trial period without thoroughly reviewing their situation. As time goes by and borrowers are stuck on the trial period for 6-10 months awaiting an answer, paperwork is lost, promises are broke, and frankly many homeowners are left owing a significant amount of money.
Lenders claim this is due to the borrower failing to provide needed documents or failing to make the payments on time. When we actuality, we have observed over and over it is the lender who many times makes mistakes calculating the borrowers information such as income and expenses. If one rep types in the wrong numbers for a borrowers account, this could lead them to denial no matter how long they have been in process.
Therefore, HAMP has always, and will always, be fatally flawed operationally as the programs problems are too big to fix. This program is an excuse for lenders to collect fees and drag borrowers along for many months before they are forced into foreclosure. Some more serious problems that HAMP did not originally address such as negative equity, unemployed, or second mortgages. Yes, they did add on new programs like 2MP and the Home Affordable Unemployment Program, but they are too little, way too late. No lenders seem to be participating in either of those programs, let alone HAMP.
Servicers make money by collecting fees:
Have you ever wondered why you servicer is so encouraged to tell you to miss payments and why you have to go through the trial period for 5-10 months before a decision is made? While it is definitely true that almost all mortgage servicers are overwhelmed with defaulted loans and modification requests, some may just string homeowners along for many months so they can rack up late fees and other fees associated with missed/reduced monthly payments.
See, servicers make a profit from investors who pay them a small percentage of money for routine practices such as sending/collecting paperwork from borrowers and collecting monthly fees. However, what some people are not aware of is the fact that servicers can make a decent amount of money through foreclosure by racking up late fees and other fees associated with a foreclosure.
One of the easiest ways for a servicer to make as much money as they possibly can on a loan is through fees that are racked up through delinquent loans. While mortgage servicers can drag the foreclosure process on for up to a year or more, they have no consequences for failure to offer the borrower assistance.
Until these banks see major losses because they are not modifying loans, we may see the same resistance from lenders to participate as we have observed this past year and a half. When homeowners call their servicer and request a loan modification, most people are encouraged to miss 30-90 days of payments before they’ll consider modifying the mortgage. With homeowners strapped tight on cash and desperate for a lower monthly payment, more and more are convinced that not making payments is the right thing to do. While the homeowner falls further and further behind, the mortgage servicers are loving it as they absorb more and more funds.
When it comes to making reduced payments through the trial period, many people are not are that they will actually owe the entire difference between the reduced monthly payments and their original payment if they are turned down for permanent assistance. So when an individual is stuck on the trial merry-go-round for ten months awaiting an answer from his/her servicer, the amount owed between the payments can stack up a tremendous amount!
For example, if someone is paying a monthly payment of $1,500 during the trial period compared to their $2,500 a month original payment, an additional $1,000 a month will need to be held accountable for if the borrower does not receive a permanent modification under this program. Therefore, a homeowner in this scenario turned down after ten months of missed payments will owe $10,000, along with additional fees the lender will tack on.
More and more homeowners are experiencing foreclosure solely because of the areas they have acquired from the trial period. It seems that as little as one missed payment or an accounting mistake on the servicer’s behalf can lead an individual on a non-stop conveyor belt to foreclosure.
A recent report noted that more than half of the people who have attempted to modify their loans have been turned down. With that number, one in five are forced into either foreclosure or bankruptcy due to the amount of arrears and late fees they have accumulated. So far less then half a million have been approved for permanent assistance. Without solving some major issues like unemployment, second mortgages, and negative equity, this program has proved not on its way to helping 3-4 million homeowners as originally expected. This means the program is not even 20% of the way there, more than a year and a half later..
So has the HAMP program truly been a total failure? It depends on your point of view about the situation. While it certainty has not yet lived up to the government’s exceptions, the one good thing the report came out with its that the re-default rate is relatively low. Now that definitely is not something to starting jumping for joy over, but at least its something..
If you are one of the millions of Americans out there struggling to afford your mortgage, we strongly encourage you join our FREE forum which now has a grass-root community of over 35,000 members!
This article can be found at: http://www.loansafe.org/the-fallout-of-the-home-affordable-modification-...
The government’s Home Affordable Modification Program (HAMP) to help reduce mortgages for borrowers to lower their monthly payment has more than fallen short of its objectives. HAMP has now been labeled a huge failure and although millions of homeowners around the nation have applied for this assistance, only very few will actually be approved for a permanent modification.
Government officials seem to be surprised about the lack of progress this program has displayed. However, all along, the program’s terrible structure was doomed for failure. According to most major media sources, missing documents and lack of communication are some of the most common excuses as to why so many people are kicked out of this program.
When a prospective home buyer goes to take out a mortgage, typically the mortgage only covers part of the value of the property (ie the property is actually worth more than what is loaned). This means that if a homeowners happens to default on their monthly obligations, the lender can foreclose on the property and sell it at auction to make up for the amount owed.
However, what most homeowners are now aware of is the fact that home prices have plummeted dramatically since 2007-2008, leaving about 20% of the nation’s mortgages underwater. Being underwater means the property now is negative in equity.
Without any equity in your home, homeowners strapped tight on cash are not able to refinance their mortgage and take cash out for other obligations that need to be taken care of. Therefore, many people are left with no choice but to pursue a loan modification, file bankruptcy, or end up in foreclosure. Obviously, the first choice for a majority of homeowners in this situation would be to apply for a loan modification to help lower their current monthly payments.
While the housing market was taking a devastating hit, the labor market also had the biggest downturn in decades, leaving more than 10% of Americans unemployed or underemployed. In some areas the jobs are so scarce you will find up to 15% or more of the population without a job. Due to a state of financial shock and a foreclosure tidal wave storming the beaches, the HAMP program was announced by the Obama Administration in March of 09.
The Home Affordable Modification Program was designed to encourage mortgage servicers to reduce mortgage payments, so that a homeowner’s total monthly mortgage payment (principal, interest, taxes and insurance included) equals no more than 31% of their gross monthly income. the payments are generally reduced down to about 2-3% interest rate for the first five years, and will gradually work it’s way up to a 4-5% fixed for the life of the loan.
Before a borrower is able to achieve permanent assistance under this program, they must first go through a three month trial period making reduced payments. According to the program guidelines, if a borrower is able to make all three trial payments on time and their situation has not changed from when they applied for the program, permanent assistance should be offered. We here at LoanSafe.org has found this to be far from the truth as we have observed hundreds of borrowers go through this program for many months just to be denied permanent assistance. Also, what is supposed to be a three month trial period, has turned into a 6-10 month trial period hell for most people that are approved for this program.
We know for a fact that a majority of these servicers are very overwhelmed with modification requests and also hire reps that are untrained in this industry and do not know anything about modifications, but who will ever admit to this… Definitely not these big banks who are swindling billions from Americans. In addition to many servicers not following this program, the government only made HAMP as a voluntary program and not an actual law/rule lenders are forced to abide by. Hence, there is nothing in place to encourage/force lenders to offer this assistance, except a very small incentive for them.
When this program first came out, many lenders would qualify borrowers for the trial period based off over the phone information or would just send them a trial period without thoroughly reviewing their situation. As time goes by and borrowers are stuck on the trial period for 6-10 months awaiting an answer, paperwork is lost, promises are broke, and frankly many homeowners are left owing a significant amount of money.
Lenders claim this is due to the borrower failing to provide needed documents or failing to make the payments on time. When we actuality, we have observed over and over it is the lender who many times makes mistakes calculating the borrowers information such as income and expenses. If one rep types in the wrong numbers for a borrowers account, this could lead them to denial no matter how long they have been in process.
Therefore, HAMP has always, and will always, be fatally flawed operationally as the programs problems are too big to fix. This program is an excuse for lenders to collect fees and drag borrowers along for many months before they are forced into foreclosure. Some more serious problems that HAMP did not originally address such as negative equity, unemployed, or second mortgages. Yes, they did add on new programs like 2MP and the Home Affordable Unemployment Program, but they are too little, way too late. No lenders seem to be participating in either of those programs, let alone HAMP.
Servicers make money by collecting fees:
Have you ever wondered why you servicer is so encouraged to tell you to miss payments and why you have to go through the trial period for 5-10 months before a decision is made? While it is definitely true that almost all mortgage servicers are overwhelmed with defaulted loans and modification requests, some may just string homeowners along for many months so they can rack up late fees and other fees associated with missed/reduced monthly payments.
See, servicers make a profit from investors who pay them a small percentage of money for routine practices such as sending/collecting paperwork from borrowers and collecting monthly fees. However, what some people are not aware of is the fact that servicers can make a decent amount of money through foreclosure by racking up late fees and other fees associated with a foreclosure.
One of the easiest ways for a servicer to make as much money as they possibly can on a loan is through fees that are racked up through delinquent loans. While mortgage servicers can drag the foreclosure process on for up to a year or more, they have no consequences for failure to offer the borrower assistance.
Until these banks see major losses because they are not modifying loans, we may see the same resistance from lenders to participate as we have observed this past year and a half. When homeowners call their servicer and request a loan modification, most people are encouraged to miss 30-90 days of payments before they’ll consider modifying the mortgage. With homeowners strapped tight on cash and desperate for a lower monthly payment, more and more are convinced that not making payments is the right thing to do. While the homeowner falls further and further behind, the mortgage servicers are loving it as they absorb more and more funds.
When it comes to making reduced payments through the trial period, many people are not are that they will actually owe the entire difference between the reduced monthly payments and their original payment if they are turned down for permanent assistance. So when an individual is stuck on the trial merry-go-round for ten months awaiting an answer from his/her servicer, the amount owed between the payments can stack up a tremendous amount!
For example, if someone is paying a monthly payment of $1,500 during the trial period compared to their $2,500 a month original payment, an additional $1,000 a month will need to be held accountable for if the borrower does not receive a permanent modification under this program. Therefore, a homeowner in this scenario turned down after ten months of missed payments will owe $10,000, along with additional fees the lender will tack on.
More and more homeowners are experiencing foreclosure solely because of the areas they have acquired from the trial period. It seems that as little as one missed payment or an accounting mistake on the servicer’s behalf can lead an individual on a non-stop conveyor belt to foreclosure.
A recent report noted that more than half of the people who have attempted to modify their loans have been turned down. With that number, one in five are forced into either foreclosure or bankruptcy due to the amount of arrears and late fees they have accumulated. So far less then half a million have been approved for permanent assistance. Without solving some major issues like unemployment, second mortgages, and negative equity, this program has proved not on its way to helping 3-4 million homeowners as originally expected. This means the program is not even 20% of the way there, more than a year and a half later..
So has the HAMP program truly been a total failure? It depends on your point of view about the situation. While it certainty has not yet lived up to the government’s exceptions, the one good thing the report came out with its that the re-default rate is relatively low. Now that definitely is not something to starting jumping for joy over, but at least its something..
If you are one of the millions of Americans out there struggling to afford your mortgage, we strongly encourage you join our FREE forum which now has a grass-root community of over 35,000 members!