Word: hamp
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...lower the principal loan balance for certain homeowners whose mortgages exceed the value of their homes. The loans would be refinanced as mortgages insured by the Federal Housing Administration (FHA), fully backed by the government. In the past, loan modifications under the $50 billion federal Home Modification Program (HAMP) involved primarily reducing interest rates or lengthening the term of the mortgage, and most did not entail a government guarantee. (See high-end homes that won't sell...
Furthermore, the Federal Government's big loan-modification effort - abbreviated as HAMP - does little to help such borrowers since in many cases lenders will recoup more by foreclosing (the test any loan modification must pass). A recent Bank of America Merrill Lynch study of loan modifications at IndyMac, which provided the template for broader modification efforts, found that about 20% of subprime loans had been rewritten, while fewer than 8% of option ARMs got reloaded. (See pictures of TIME's Wall Street covers...
...Experian and the consultancy Oliver Wyman, nearly 600,000 borrowers might have intentionally defaulted on their mortgages in 2008, twice as many as the year before. The social norm that in previous eras would have prevented people from simply walking away from their homes seems to be eroding - but HAMP puts a low priority on reducing the overall amount a person owes. In fact, among permanent modifications, the average loan amount as compared to home price (the so-called loan-to-value ratio) has increased...
...other big gap in HAMP is the way it deals with- or fails to deal with - people who wouldn't be in a position to keep their houses even with a modification. Emily Jones, a manager at Neighborhood Housing Services in Boise, Idaho, says about half of all people who walk into her housing-counseling agency fall into that camp. "The goal isn't to keep the home in every situation," she says. "The goal is to avoid foreclosure, and in a lot of situations, it's not in the client's best interest to try to keep the home...
...part of HAMP that would most work to help these people has been incredibly slow to get off the ground. Back in May, the Treasury Department announced that it would issue guidelines on how lenders might speed up dealing with borrowers who simply want to hand back the deed to their house or sell their home for less than is owed on the mortgage (a so-called short sale). Distressed homeowners and housing counselors have long complained about short sales being scuttled by lenders that take too long to respond to a potential buyer's offer. The plan to beef...