In 2009, when the Home Affordable Modification Program (HAMP) started, the Obama administration was hopeful that the program would help curb the housing crisis by helping homeowners to modify their loans and avoid foreclosure. Now, four years later, the results indicate that the program isn’t as effective as hoped.
Expectations vs. reality
At the beginning of HAMP, it was estimated that the program would benefit about 4 million homeowners. In actuality, HAMP has so far only managed to help less than 25% of that amount. And of those that did receive a loan modification through HAMP, nearly half are again in default with another 10% in danger of redefaulting. Furthermore, more than a million homeowners have been kicked out of the program for not meeting certain criteria or for being unable to make three trial payments for the modified amount. While the program was given 38.5 billion to be distributed, only 8.6 billion has been used so far.
Not all the failures can be attributed to the program itself. The banks which oversee the qualification process for the program are also to blame. Many banks weren’t prepared to properly administer the HAMP program and that has led to many foreclosures that may have been avoided. At Bank of America, for instance, it was revealed that case managers were asked to throw out all HAMP applications that were more than 60 days old.
In order to make the program more effective at assisting struggling homeowners, HAMP has undergone several changes. Adjustments have been made to the requirements for participation in the program. The program was also modified to better reward investors who grant principal reductions. Even deadlines were extended to try to improve the program. Despite these changes however, HAMP is still falling short of what was expected. Because these temporary fixes and adjustments to HAMP aren’t getting the job done, some are beginning to look in a whole new direction for a more permanent solution to the foreclosure crisis.
A more permanent solution
According to the Congressional Budget Office, a program that had the authority to grant principal reductions rather than just loan modifications could save billions of taxpayers’ dollars. A program like that could also reduce the number of defaulted loans and foreclosures. Because studies show principal reduction as such a valuable tool in preventing foreclosure, it’s likely the government’s next foreclosure prevention program will rely on the strategy.
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