The Results of the Home Affordable Modification Program is....
An F minus.
April was not a good month for loan modification results, and the cumulative results has been rather disappointing as well.
According to CNN.Money.com, more than 122,000 borrowers had their trial mortgage modifications canceled in April, bringing the total to 277,640 since the program began about a year ago, according to federal statistics released Monday. Meanwhile, only about 68,000 homeowners were converted from these trials to permanent modifications last month.
That means more than twice as many homeowners were kicked out of their homes than helped. And, according to Mortgage News Daily, of the projected 2.7 million homeowners HAMP was designed to provide help to, only a total of about 290,000 people have received permanent long-term help under the loan modification plan. Not everyone who received help stayed in the plan. Overall, only about 23% of people asking for help are put into a loan modification program. And a 23% success rate on a test in school earns you an F minus. Is this what the Federal Government’s plan was designed to accomplish when it decided to give $75 billion dollars of tax payers money to the banks? Why are the results of the HAMP so bad? Because the process is really designed to fail. The number one factor in qualifying for a loan modification is income. However, the biggest reason for people needing the loan modification is lack of income. As long as unemployment is at or near double digits, people will be unable to afford their house. When people don’t have jobs, homeowners will not be able to afford their homes no matter what the interest rate is. And once unemployment goes back to pre-recession numbers, then the need for loan modifications will go away. This means that no government money is really needed.
The second reason for failure is that loan modifications are not doing a big part of what the billions of dollars were designed to do, which is reduce the principal. Most successful loan modifications are simply reducing payments while adding more to the end of the loan. While the intent by the Federal Government by providing $75 billion to the banks is to have banks reduce the principal, the Fed Govt made the program voluntary, so the banks don’t have to reduce principal if they don’t want to. And given the results so far, they don’t seem to want to reduce principal. But the banks are keeping the $75 billion! Many politicians are citing the program as successful because the number of foreclosures since the program was initiated has leveled off, and they are citing HAMP as a major reason for it. And there is some truth to this claim. But any success can be deemed only short term success. Since banks are overwhelmed and taking up to 6 months to make a decision on a loan modification, homeowners are able to live for free; therefore not leaving their homes. Once banks become efficient, many people in trial modifications unable to pay will lose their homes quicker. To summarize, many homeowners are having difficulties paying their mortgage due to not having income. The federal government provides the banks with a voluntary program to adjust principal and interest rates to homeowners in distress, and gives them $75 billion to do so. The main stipulation to loan modification success is income yet it targets people without income, leading to a very low success rate. And when the loans are being modified, all the banks are doing is reducing monthly payment yet adding fees to the back and and increasing the overall value of the loan. And very little principal reduction is taking place. The only solutions being proposed by the Federal Government are to improve it’s 23% success rate by making it harder for distressed homeowners to qualify for a loan modification by making homeowners prove income from the beginning. Those that don’t qualify financially will then not be counted as an applicant, and thusly, the conversion rate will improve. The goal of the plan is to receive a 100% conversion rate, or an A+. But overall, while the performance tracking will have changed, it will still only help out about 1 in 4 distressed homeowners. Therefore, I’ll still give the plan an F minus. About the author: Tom Bukacek is an investor / mentor in the Austin Texas area. His passion is assisting new real estate investors in different ways to buy and sell properties for a profit. He also has a company that focuses on assisting investors on generating leads for their real estate investing business. For more information on how to get your phone ringing off the hook, go to http://www.entrepreneurs-incubator.com/services/turn-key-marketing-solution/
That means more than twice as many homeowners were kicked out of their homes than helped. And, according to Mortgage News Daily, of the projected 2.7 million homeowners HAMP was designed to provide help to, only a total of about 290,000 people have received permanent long-term help under the loan modification plan. Not everyone who received help stayed in the plan. Overall, only about 23% of people asking for help are put into a loan modification program. And a 23% success rate on a test in school earns you an F minus. Is this what the Federal Government’s plan was designed to accomplish when it decided to give $75 billion dollars of tax payers money to the banks? Why are the results of the HAMP so bad? Because the process is really designed to fail. The number one factor in qualifying for a loan modification is income. However, the biggest reason for people needing the loan modification is lack of income. As long as unemployment is at or near double digits, people will be unable to afford their house. When people don’t have jobs, homeowners will not be able to afford their homes no matter what the interest rate is. And once unemployment goes back to pre-recession numbers, then the need for loan modifications will go away. This means that no government money is really needed.
The second reason for failure is that loan modifications are not doing a big part of what the billions of dollars were designed to do, which is reduce the principal. Most successful loan modifications are simply reducing payments while adding more to the end of the loan. While the intent by the Federal Government by providing $75 billion to the banks is to have banks reduce the principal, the Fed Govt made the program voluntary, so the banks don’t have to reduce principal if they don’t want to. And given the results so far, they don’t seem to want to reduce principal. But the banks are keeping the $75 billion! Many politicians are citing the program as successful because the number of foreclosures since the program was initiated has leveled off, and they are citing HAMP as a major reason for it. And there is some truth to this claim. But any success can be deemed only short term success. Since banks are overwhelmed and taking up to 6 months to make a decision on a loan modification, homeowners are able to live for free; therefore not leaving their homes. Once banks become efficient, many people in trial modifications unable to pay will lose their homes quicker. To summarize, many homeowners are having difficulties paying their mortgage due to not having income. The federal government provides the banks with a voluntary program to adjust principal and interest rates to homeowners in distress, and gives them $75 billion to do so. The main stipulation to loan modification success is income yet it targets people without income, leading to a very low success rate. And when the loans are being modified, all the banks are doing is reducing monthly payment yet adding fees to the back and and increasing the overall value of the loan. And very little principal reduction is taking place. The only solutions being proposed by the Federal Government are to improve it’s 23% success rate by making it harder for distressed homeowners to qualify for a loan modification by making homeowners prove income from the beginning. Those that don’t qualify financially will then not be counted as an applicant, and thusly, the conversion rate will improve. The goal of the plan is to receive a 100% conversion rate, or an A+. But overall, while the performance tracking will have changed, it will still only help out about 1 in 4 distressed homeowners. Therefore, I’ll still give the plan an F minus. About the author: Tom Bukacek is an investor / mentor in the Austin Texas area. His passion is assisting new real estate investors in different ways to buy and sell properties for a profit. He also has a company that focuses on assisting investors on generating leads for their real estate investing business. For more information on how to get your phone ringing off the hook, go to http://www.entrepreneurs-incubator.com/services/turn-key-marketing-solution/
Comments (1)
Excellent Post. HAMP gets an "F" and I believe HAFA is likely to follow with similiar results. If we are going to spend tax money at all jobs are what all these people need in order to be able to make a mortgage payment. Banks, like Bank of America, are at the heart of the mortgage problem, are kept alive with tax payer funds, and have little to no regard for their clients.
Ted Akers, over 14 years ago