By Carla Ghosn, Founder and CEO of Mycaal.com.
The Obama administration has recently announced its intention to introduce some changes to the HAMP (Home Affordable Modification Program) program, part of its Making Home Affordable initiative. Most would agree that since the introduction of the program with the alleged aim of helping struggling homeowners in America, it has met with marginal success, at best. These new changes are intended to enhance the efficiency of this housing initiative so that an increasing number of Americans benefit from the resultant financial relief. Here is what the proposed changes will look like:
Lengthening the Time Period – The HAMP program will be offered for an additional year, closing at the end of 2013. This date matches the extended deadline that has been put in place for the HARP program (Home Affordable Refinance Program).
Facilitating expanded eligibility – The program is being tweaked to help a broader range of homeowners. An additional evaluation procedure will provide more homeowners with assistance while make the same borrower safeguards available, and laying out clear rules for servicers which include: 1) Making sure that homeowners buckling under excessive debt are able to participate in the program. Numerous Americans who have an affordable home loan payment are battling with other overwhelming debt in the form of medical bills or additional liens. Acknowledging this reality, the HAMP program is being expanded to offer greater flexibility with regard to debt-to-income criteria, and 2) Stopping further foreclosures in support of renters and in an effort to bring stability to communities across the country. The U.S. Treasury will broaden eligibility to encompass properties that are presently occupied by a renter, as well as vacant properties which homeowners are intent on renting out. This measure is expected to bring relief to homeowners who live in and rent out their homes.
Raising incentives for cost-effective modifications – The stated idea here is to help homeowners rebuild equity in their residential properties. At the moment, HAMP includes an option that allows servicers to provide borrowers with modifications that incorporate principal decreases, in cases where the mortgage is underwater. In an effort to encourage investors to entertain the notion of principal reductions, the Obama Administration will: 1) Increase the incentives offered to investors by three times, now paying 63 cents on the dollar (up from 18 cents), dependent on the scope of the change in the loan-to-value ratio, 2) Provide principal-lowering incentives for mortgages owned or insured by government sponsored enterprises (GSEs). The FHFA (which regulates Fannie Mae and Freddie Mac) has been informed by the Treasury that it Fannie and Freddie will receive reduction incentives for writing off principal amounts as part of a HAMP loan modification.
The final point seems a bit reminiscent of a previous HAMP criteria that offered lenders a cash incentive of $1,000 for every loan modification they entertained, regardless of whether that application was approved or not. The result? Homeowners were rejected for loan modifications numerous times while banks and lenders pocketed $1,000 every time an application was submitted and rejected. Between American homeowners and the many lenders in this country, it’s clear by now who benefited the most from that strategy. It certainly wasn’t the people who the HAMP program was supposedly intended to assist in the first place.
Homeowners in this country would be wise not to leave their financial fate in the hands of banks and lenders. It’s critical that people take steps to empower themselves and to submit a loan modification application that is informed by in-depth research and supported by expert help. Visit Mycaal.com to learn about preparing the most comprehensive loan modification application possible.