Bankruptcy

Home Loan Modification Program Begins to Help

By ckramer

According to a New York Times article, the Obama administration?s Home Affordable Modification Program (HAMP) is on the road to achieving its goal of modifying 500,000 home loans by November.

What Is HAMP?

HAMP is a program designed by the Obama administration to incentivize home loan modifications for lenders. It?s backed by $75 billion and designed to end the foreclosure crisis plaguing American real estate. Here?s how it works:

• Lenders reach out: For every home loan lenders and borrowers successfully modify, the lender gets $1,000 from the HAMP fund.
• The payments begin: After three months of successful payments, the loan modification is considered ?complete,? and cash incentives are distributed.
• Maintenance is rewarded: For each year that the borrower (the homeowner) stays current on payments, the lender is given another $1,000.

In other words, HAMP attempts to lure lenders to modifications. Without this program, many lenders are financially incentivized (by the fee structure of the mortgage lending industry) to let mortgage loans slip into delinquency and the homes into foreclosure. In other words, late and delinquent loans earn lenders the most money through fees and penalties.

Who Can HAMP Help?

Borrowers are considered eligible if and when they?re at least 60 days behind on their home loan payments. Various economists have estimated that as many as two million American families can expect their homes to go into foreclosure before the end of the crisis if nothing is done to modify their loans.

Reports indicate that:

• 19 percent of eligible borrowers have been offered modifications so far, which equals more than 570,000 loans.
• 12 percent of eligible borrowers (about 360,000) have actually started the loan modification process.
• Nearly eight percent of all U.S. homeowners are seriously delinquent on their mortgage payments, according to recent reports from the Mortgage Bankers Association.
• 47 mortgage servicers have so far signed up with the Treasury Department to participate in the HAMP program. These servicers account for approximately 85 percent of all eligible mortgages.

Looking Beyond the Numbers

While the modification totals have been modest so far, these numbers show improvement from Bush administration efforts, when the FDIC announced explicit disapproval of the foreclosure-prevention steps taken at that time.

Additional Resources

Home Affordable Modification Program Guidelines (PDF)

Full post as published by The Bankruptcy Blog on September 14, 2009 (boomark / email).