Home crisis HAMP-ered
Program flawed: critics
The foreclosure crisis is still raging, but on Dec. 31, President Obama’s first and largest mortgage-modification program ends.
In February 2009, when a tidal wave of foreclosures threatened America’s ailing economy, Obama launched the Home Affordable Modification Program, or HAMP, touted as a lifeline for up to 4 million struggling homeowners.
It didn’t work out that way. Lenders have granted just 1.6 million permanent modifications — while canceling nearly 800,000 trial HAMP modifications.
Meanwhile, American families, including a disproportionate number of minority households, have lost 6.5 million homes to foreclosure since 2008.
Big financial institutions, however, have collected $16 billion from Uncle Sam for HAMP and related programs. HAMP did not force lenders to slash the total amounts owed, the surest route to helping troubled borrowers. Instead, the government paid lenders to modify loans at their discretion, with no obligation to convert trial modifications to long-term affordable deals.
“HAMP ... was conceptually flawed,” said Damon Silvers, special counsel to the AFL-CIO and former deputy chair of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP). “Americans paid on mortgages that were worth more than their homes, when the principal should have been written down. It was a massive unreasonable wealth transfer to the banks.”
Roughly 3 million homeowners nationwide owe more in mortgage debt than their homes are worth, according to CoreLogic, while serious delinquencies are on the rise in New York.
In a July report detailing nonbinding post-HAMP recommendations, the government [Trea- sury, Housing and Urban Development, and Federal Housing Finance Agency] acknowledged that “there will no longer be a standard loss mitigation option that cuts across servicer and investor types.” Legal aid attorneys fear high interest rates on proprietary modifications — if troubled borrowers can even secure them.
HAMP’s income-based modifications with interest rates as low as 2 percent will remain an option for some borrowers, including those with Federal Housing Administration-insured loans.
“Home Affordable changed how mortgage servicers handled homeowners in distress; not only by developing a template for loan modifications focused on affordability, but also by creating and enforcing standards of care that have been widely adopted by the entire industry,” a Treasury spokesperson said.