Post by fireopal on Jan 12, 2010 3:49:03 GMT 4
Fixing the Home Affordable Modification Program to Mitigate the Foreclosure Crisis
Jean Braucher
University of Arizona - James E. Rogers College of Law
December 19, 2009
Arizona Legal Studies Discussion Paper No 09-37
Abstract:
The largest federal effort to mitigate the foreclosure crisis is the Home Affordable Mortgage Program (HAMP), which commits $75 billion to try to prompt three to four million home loan modifications for delinquent borrowers, using subsidies to loan investors, servicers and borrowers. HAMP produced 728,408 active modifications through the end of November, but only 31,382 had passed through a three-month trial and become permanent. Also troubling, many permanent modifications are unlikely to be sustainable. HAMP modifications typically reduce monthly payments using temporary interest rate breaks, rather than loan forgiveness, and leave about three-quarters of borrowers owing more than the value of their homes, often much more. Underwater borrowers are at high risk of redefault due to income or expense shocks or life events that prompt a move. HAMP needs to be fixed in at least two ways: (1) creating an effective compliance and enforcement program to see that more modifications become permanent, and (2) adding more principal forgiveness to the program. Both are urgent agenda items to make the program effective to reduce the spillover effects of foreclosures on the housing market and the economy as a whole, threatening recovery.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1526574_code575020.pdf?abstractid=1518098&mirid=2
Jean Braucher
University of Arizona - James E. Rogers College of Law
December 19, 2009
Arizona Legal Studies Discussion Paper No 09-37
Abstract:
The largest federal effort to mitigate the foreclosure crisis is the Home Affordable Mortgage Program (HAMP), which commits $75 billion to try to prompt three to four million home loan modifications for delinquent borrowers, using subsidies to loan investors, servicers and borrowers. HAMP produced 728,408 active modifications through the end of November, but only 31,382 had passed through a three-month trial and become permanent. Also troubling, many permanent modifications are unlikely to be sustainable. HAMP modifications typically reduce monthly payments using temporary interest rate breaks, rather than loan forgiveness, and leave about three-quarters of borrowers owing more than the value of their homes, often much more. Underwater borrowers are at high risk of redefault due to income or expense shocks or life events that prompt a move. HAMP needs to be fixed in at least two ways: (1) creating an effective compliance and enforcement program to see that more modifications become permanent, and (2) adding more principal forgiveness to the program. Both are urgent agenda items to make the program effective to reduce the spillover effects of foreclosures on the housing market and the economy as a whole, threatening recovery.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1526574_code575020.pdf?abstractid=1518098&mirid=2
