HAMP Modification to Include Principal Writedowns

The Home Affordable Modification Program will make further attempts to extend relief to struggling homeowners, the administration announced last week, by tripling the incentive for banks to conduct principal writedowns as well as offering those incentives to Fannie and Freddie—should FHFA allow the GSEs to partake in the program.

FHFA will not allow Fannie and Freddie to engage in any HAMP-related princpal forgiveness program at this point, with the agency's Acting Director Edward DeMarco citing a preference for principal forbearance. That assertion was called into question by HUD Secretary Shaun Donovan in a conference call when he placed an emphasis on rebuilding equity: “Lowering payments isn't enough.” FHFA will reportedly take HAMP's latest incentives into consideration.

The move comes as HAMP, while having helped roughly 900,000 homeowners achieve permanent loan mods, has fallen far short of its stated goal at its 2009 launch of modifying three to four million loans by now. A post on HUD's blog, however, places HAMP at the center of public and private modifcation efforts, helping to “set the industry standard for successful modifications and have helped prompt private lenders to modify an additional 2.6 million mortgages.” The article states that more than 4.6 million Americans have received mortgage aid since HAMP's launch.

Other changes to HAMP include expanding the program's eligilibility for tenant-occupied properties.

But do these moves come too late? Banks have not been as eager to take part in HAMP as the administration had hoped. Ira Rheingold, executive director of the National Association of Consumer Advocates questioned the efficacy of so-called HAMP 2.0 in the Huffington Post:

“The fact is, the banks have done a terrible job complying with the program. Today, we're seeing the same problems as three years ago—they lose people's documents, they wrongly push people into foreclosure. And the Treasury Department hasn't held them accountable for their failures. So even if you expand the incentives, until you make the banks comply, we're going to see these problems.”

See a full list of HAMP changes here.

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