Black and Buono Blog

...by Anthony Buono

Loan modifications have failed. The federal government put together an ineffective and grossly mismanaged Home Affordability Modification Program (HAMP). The lenders did not really want to modify loans.
 
In reality, the federal program pushed temporary modification trial programs that had little incentive to move them to permanent modification status.
 
The homeowners submitted the same paperwork over and over again in the approval process, and then they were denied the loan modification most often anyway. Those few homeowners that were approved many times ended up defaulting on the lower payments.
 
The HAMP was designed for a lower payment on the primary mortgage or the first lien on the home. Very few servicers of second liens have agreed to participate, and no second liens have been modified. For homeowners with second liens, the lower payment on just the first lien may not be enough to get them back on track in keeping up with payments.  
 
Another reality is when homeowners have no job or employment stability, they cannot make a mortgage payment no matter how much they may want to or how low the payment. Five dollars is a lot of money if one needs it and doesn’t have it. Adding to the mix is an already strained homeowner paying the contracted $5 for something they know is only worth $3 now.
 
The lenders have been their own worst enemies in the foreclosure mess.  Their bad behavior in not working with loan modifications in good faith, dragging their feet on modification approval to extend penalty fee revenue, robo-signing foreclosure paperwork, and the lingering sentiment that they caused the housing mess to begin with has left them in a position for maximum public outrage and more government intervention.
 
The Obama administration and Treasury may or may not have learned from the HAMP disaster, but they are already planning on new government intervention programs aimed at the loan servicers. They are looking at forcing loan balance reductions for underwater mortgages with loan servicers developing their own mortgage modification programs.
 
Further, they want to specify the cost of reducing loan principle be paid by the loan servicers themselves and not by public or private investors that bought mortgage-backed securities.
 
How easy it is to ignore one of the main reasons the HAMP failed so miserably was because loan servicers did not really want to modify loans and had a financial incentive not to in reality.
 
Perhaps the average loaning bank has had a change of heart. Perhaps they will jump at the change to not only modify loans to ensure lower payments but reduce the principle to reflect value loss too. And this time the cost would be paid by the bank and not the government.
 
That won’t cause any problems for a new government program or new regulation, will it? The average consumer will be helped not hurt, right?  
 
Perhaps Treasury has in fact learned from their mistakes in the HAMP experiment - or maybe not.
 
In addition to the federal government looking to impose new programs on loan servicers, several states are looking at new ways to impose principle write down programs for underwater mortgages.
 
Original article By Brenda Krueger Huffman (AXcess News)

Comments (0) | Trackbacks (0) | Permalink | |