The House of Representatives voted to take away the funding for the Home Affordable Modification Program, popularly known as HAMP on March 29. HAMP is currently the only federal program designed to help homeowners with underwater mortgages avoid foreclosure.
Despite the vote, HAMP will not shut down because President Obama has vowed to veto any legislation killing it. It is also unlikely that such a bill would get through the Senate, which is controlled by the Democrats. There is a strong possibility that the Senate Democrats may try to revamp the program which many people consider to be a failure.
252 members of Congress including 234 Republicans and 18 Democrats voted to end the funding. The Republicans want to end HAMP because they view it as a waste of money. Rep. Darrell Issa, (R-Calif.) claimed that more people had been kicked out of the program than were helped by it.
Despite the Republican opposition, HAMP still has some powerful supporters in Washington, Rep. Barney Frank (D-Mass.) said that homeowners would be worse off without the program. Frank is one of the best known and most influential Democrats in the House.
Effect on Homeowners Unclear
It is not clear how the political turmoil surrounding HAMP will affect homeowners and those seeking mortgage refinance. Even though Republicans probably won’t be able to kill the program they probably will be able to reform it. The nature of these reforms is not known at this time.
Nor is it clear how ending HAMP would affect those who have received mortgage modifications through the program. Presumably the modified mortgages would stay in effect. The HAMP website is still up and running so the Treasury Department is still apparently taking applications for it.
Many Democrats are just as critical of the program as Republicans are. Rep. George Miller (D-Calif.); a close ally of Minority Leader Nancy Pelosi, told the Huffington Post website that he voted to kill HAMP because of horror stories his constituents told him about the program. Miller alleged that Californians who tried to get help with their mortgages were ripped off and abused by unscrupulous lenders.
Miller also accused the Treasury Department, which administers HAMP; of doing nothing to protect homeowners. He alleged that lenders lost mortgage documents for those seeking modifications and lied to them.
Miller wasn’t among fifty other Democrats who sent a letter to Treasury Secretary Timothy Geithner asking for reforms to the program. These reforms include a “dual track” modification process to allow mortgage service companies to foreclose on a mortgage and modify it at the same time. It is not clear whether this work or if it would be legal.
Instead of modifying HAMP, Miller told the Huffington Post that he would like to see bankruptcy judges given the power to modify mortgage contracts. The House passed a bill giving the judges that power in 2009 but it died in the Senate.
HAMP was created as part of the Trouble Asset Relief Program or TARP which bailed out financial institutions after the crash in 2008. The idea behind it was to give banks incentives to refinance mortgages that were “underwater.” Underwater is a mortgage industry term for a house that is mortgaged for more than it is worth. It is now estimated that as many as one fourth of American homes are underwater.
HAMP has not lived up to expectations. The $1.3 billion program was designed to help between 3 and 4 million families stay in their homes, TARP special investigator general Neil Barofsky told CNN. Instead he estimated that it has only helped around 500,000 people refinance their mortgages.
CNN reported that around 100,000 more homeowners have applied for HAMP. It would cost the Treasury Department around $1.3 billion to refinance these people’s mortgages through HAMP, the Congressional Budget Office reported.
HAMP Refinancing is still available
Despite the political furor surrounding it, HAMP refinancing is still available to homeowners. Persons who are interested in this program or refinancing should try to refinance now before Congress makes major changes to the program.
It is also clear that homeowners whose properties are underwater should not necessarily rely upon the federal government for help. Instead they should try and seek out refinancing on their own. It may still be possible for these persons to refinance and get a lower interest rate.
Persons that do not have homes that are underwater will not be affected by the political debate over HAMP. Ending this program will not restrict anybody’s ability to get refinancing. Nor will it affect interest rates or property values.
It is still a fairly good time to refinance if you can because interest rates are still at historic lows. This can significantly reduce your mortgage payments if you switch to a 30 year mortgage with a lower interest rate.
Now is a Good Time to Refinance
It might be a good idea to mortgage refinance now before interest rates go up and new rules for mortgages go into effect. Federal regulators at the Federal Deposit Insurance Corporation (FDIC) and the Securities Exchange Commission (SEC) are getting ready to vote on new rules for the mortgage industry.
Fox Business News reports that these rules would mandate a 20% down payment on new mortgages. They would also add strict new income requirements for low interest mortgages. It is not clear when these new regulations; which were mandated by reform legislation, would go into effect.
The new rules would have to be approved by the FDIC, the SEC, the Federal Reserve, the Department of Housing Urban Development, the Comptroller of the Currency and the Federal Housing Finance Agency before going to effect. The rules leaked to Fox are apparently a draft of what the agencies are considering.