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MORTGAGE NEWS

Uncle Sam's Failed Mortgage Modification

Written By:
November 05, 2010 at 2:39 PM

The federal government’s efforts to help homeowners with non-FHA mortgages avoid foreclosure don’t seem to be working.

The Home Owner Affordable Mortgage Program, or HAMP, which tries to keep families in their homes by modifying mortgage terms and payments isn’t helping that many people. Only around 28,000 people received the loan modifications in September even though several million American homeowners are facing foreclosure, the investigative journalism site ProPublica reported. During the same period 10,000 people fell out of HAMP because they didn’t or couldn’t make the modified mortgage payments.

Nor has HAMP helped that many homeowners, according to ProPublica only about 467,000 people are participating in the loan modifications. The administration had hoped to help 3 to 4 million homeowners with the program.

In most cases HAMP tries to keep people in their homes by working out an agreement with a mortgage lender to lower payments. If these numbers are correct it means that the Obama Administration’s mortgage modification efforts are not working.

Short Finance

The administration seems to have recognized this and announced plans for a new program called Short Finance. Under Short Finance a mortgage would be replaced by a new FHA-backed mortgage rather than modifying the existing loan.

The Short Finance mortgages are designed for homes that are underwater. That is cases in which the amount of a mortgage exceeds the value of the home. Many homeowners are in this predicament because of falling real estate prices. The new mortgage would reflect the new lower value of the home.

It is unclear how Short Finance would work or if lenders will go along with it. Mortgage lenders have been reluctant to go along with loan modification through HAMP.

Applying for Loan Modification

Even though the numbers of loan modifications are falling it is still possible for home owners to get one. The Homeowner Affordable Mortgage Program is still in business and making modifications.

The key to getting these modifications seems to be persistence. Homeowners may have to apply several times to get a modification and will have to find a lender willing to work with them.

Finding a mortgage counselor that knows the process can also help a homeowner get a HAMP modification. The US Treasury Department’s HOPE Hotline at 1-888-995-4673 can help a person locate such a counselor.

Other resources that can help homeowners get a HAMP modification include support groups for individuals facing foreclosure and attorneys that specialize in foreclosure issue. A person should be able to locate these resources online.

No announcements about how Short Finance is going to be administered or how individuals can apply for it have been made. The FHA should make a public announcement when the details of the program have been worked out.

Failure of HAMP Raises Questions

HAMP’s failure to help a lot of homeowners certainly raises questions about Short Finance and other efforts to help homeowners avoid foreclosure. It will certainly empower critics who say government shouldn’t be involved in such efforts.

It may also make it difficult to get Congressional support for such efforts in the future because the public may see such attempts as bank bailouts. If the Republicans win this week’s election they will be reluctant to support any effort that could be seen as a bailout. This means that Obama may not be able to get money from Congress for Short Finance.

Using taxpayer funds to bailout homeowners is going to be a very hard sale. If the public sees short finance as another bank bailout effort, President Obama may not be able to get Congress to along with it. Republican politicians have already gotten a lot of votes by attacking bailout efforts.

How this will affect the mortgage market is hard to ascertain. If the foreclosure crisis gets worse it could make it even harder to get a mortgage. It could also drive real estate prices down further by dumping more foreclosed property on the market.

It is highly probable that the White House will simply stop offering solutions and concentrate on other portions of its domestic agenda. That could leave homeowners facing foreclosure on their own.

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