Obama Administration to Announce Expansion of HAMP – Principal Reductions and Help for Unemployed


Okay, so I feel a little bit like Charlie Brown looking at Lucy holding out a football, but that being said…

On Friday, the White House is expected to announce an expansion of the president’s Making Home Affordable loan modification program to include reducing the mortgage loan balances for some homeowners, and providing additional temporary assistance to unemployed homeowners.

Although unofficial, the rumors are that the expansion will allow unemployed borrowers to make significantly reduced payments—or potentially a break from making any payments at all—for at least three and in some cases, up to six months. The changes are also said to require banks to consider writing down principal loan balances as part of the formula for lowering monthly payments under the federal Home Affordable Modification Program, or HAMP.

Changes that are supposed to require banks to CONSIDER writing down principal loan balances as part of the formula for lowering monthly payments?


The really funny thing here is that you just know there some banking lobbyist upset up about this.  Can’t you just hear them:

“This is egregious and unreasonable!  Lenders and servicers should not be required to consider anything.  We’ll need more federal support.”

Or, maybe it’s good; I’m not saying it’s not.  But homeowners have been burned too many times by the large print giving and the small print taking away, when it comes to programs that are to be offered by our nation’s lenders and mortgage servicers.  I trust them like I throw them.  Capisce?

In addition, the administration is supposed to introduce a program that will FHA insure new loans for borrowers who are underwater, meaning that they owe more than the current market values of their homes.

According to the Wall Street Journal:

Under that program, investors who reduce loan balances to 96.5% of the current property value would refinance borrowers into an FHA-backed loan. Investors would have to reduce first-lien mortgages by at least 10%. For properties that have second-lien mortgages, the program is designed to reduce the total mortgage debt to no more than 115% of the estimated property value. Banks that hold second-liens will be eligible for incentive payments if they write down those loans so borrowers can qualify.

To pay for the expanded program, the administration will allocate $14 billion in money from the Troubled Asset Relief Program that had already been earmarked for foreclosure prevention efforts.

The WSJ story also reported that an administration official said that the program adjustments were designed to “better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.”

Uh oh… there’s that phraseology again: “responsible homeowners.”  I hate that phrase.  You know how you tell a responsible homeowner from an irresponsible one, right?  You check the garage for jet skis and confirm by looking in the living room for a flat screen.  If both are present, you’ve got an irresponsible homeowner.  Hummer in the driveway?  Throw the bum in debtors prison and be done with him or her.


Clearly, the administration is trying to increase the help available to the most troubled homeowners without creating an incentive that will drive those who can afford their payments to stop making them just to get the same deal.

And obviously, with the number of delinquent mortgages going nowhere but up, unemployment numbers continuing to negatively “surprise” economists… LOL… while home sales have reached an all-time low, and a shadow inventory of foreclosures that would keep the entire African Continent out of the sun threatening to come soon to a neighborhood near you… and with the Barofsky report basically only stopping short of calling the Obama plan as it stands utter and ineffective idiocy… the administration has realized that something has to be done… like yesterday.

According to the latest report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision, some 13.6% of borrowers had missed at least one mortgage payment or were in foreclosure at the end of 2009, up from 12.8% at the end of the third quarter, and the seventh-straight quarterly increase.  The number of borrowers who were seriously delinquent — 60 or more days behind, or 30 days behind and in bankruptcy protection — was 7.1%, up from 4.6% a year ago.  More than half of all borrowers with modified loans had missed two or more payments within nine months of receiving a modification. But loan modifications that reduced monthly payments by at least 20% had resulted in a lower re-default rate, at 35%.

Neil Barofsky was quoted in the Journal as saying that many of the program’s flaws stemmed from a “ready, fire, aim kind of approach” that the Treasury Department took in launching the program one year ago.  The government put some borrowers into “hopeless modifications with little chance to succeed,” Barofsky told the WSJ. “It may have actually harmed the people this program was intended to help.”

Yeah, that’s about the size of it, but if you lost your home as a result of that incompetence, I doubt Neil’s characterization makes you feel any better.

So, alrighty then… let’s wait and see… tomorrow will be here soon enough, and then we’ll see whether the banks will follow the new rules, or continue as if nothing has changed.  I’ve got hope… I guess.

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