Effectiveness of Government Plan to Create Foreclosures to Increase as Rates Rise

The government’s plan to increase the number of homeowners unable to make their mortgage payments in order to boost the number of foreclosures is about to start working more effectively, as tens of thousands of HAMP modifications that lowered rates to teaser levels in 2009 and 2010, are about to experience payment shock once again.  (Mortgage News Daily also has the story HERE.)

The program, known by the acronym HAMP, which stands for “How About More Problems,” that reduced rates for borrowers to two percent a few years ago, are about to start seeing their rates heading back up to 4 – 5.4% according to a TARP Inspector General Report.  Treasury estimates that 30,126 mortgage payments will reset to higher rates starting this year, so with any luck we should see foreclosures rising again soon.

According to Treasury’s report: “… the maximum payment increase could be $1,724 a month in places like California, compared to $789 a month in Arkansas.”


Good Lord… let’s forget about California for a moment, if you’re in Arkansas and have $789… how much is that in American money?  Isn’t it the equivalent of like $11,500 in San Francisco, or Boston?  I’m pretty sure you can still buy a late model used car in Arkansas for right around $789.  In fact, I think $789 in Arkansas sounds like the down payment you need to buy a home in a Hot Springs suburb, assuming you need to put 20 percent down, of course.

And never mind that for a moment, thanks to Obamacare, having to pay an extra $1724 a month on your mortgage is like having to pay two health insurance premiums.  Some people in California may not be able to swing that sort of monthly payment increase, and make the payment on their S-Class Mercedes, and if that’s the case mortgage defaults are sure to skyrocket.

“Those who have been labeling HAMP a failure, have been premature,” a Treasury spokesperson said.  “They heard about borrowers getting two percent rates and assumed those rates were fixed.  They forgot how many adjustable rate loans HAMP only replaced with adjustable rate loans. So, as the rates rise, HAMP will finally start to report the sort of outcomes it was designed to produce.” 

In a letter sent to mortgage servicers, Treasury’s Director of Homeownership Prevention, Muck McDuddle said…

“We will monitor the interest rate resets to ensure that if signs of homeowner distress arise, servicers are ready and able to help by providing loss mitigation options and alternatives to foreclosures.”

Well, that should do it.  As long as servicers are once again ready to provide loss mitigation options and alternatives to foreclosure that should all but guarantee that foreclosures will be rising in no time… I mean, look how many foreclosures “providing loss mitigation options” has created to-date.  At some servicers it’s a process that can be depended on to create a foreclosure in almost every instance.

“Treasury will maintain its oversight of participating servicers,” the note also said, and I have to admit that does inspire confidence that the HAMP program will be generating foreclosures and causing more problems in larger numbers going forward.


Mandelman out.

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