HAMP-y Endings…

The Home Affordable Mortgage Program was voted down as expected this week, ending a well-intentioned attempt at keeping struggling homeowners in their homes. The cut should end up saving taxpayers about $1.4 billion, but could likely cost far more if a new plan isn’t designed to replace it.

While you’d be hard-pressed to find many people who would support HAMP as it were, there are many who believe significant changes to it could go much farther in not only keeping Americans in their homes, but also improving the economy at the same time.

In general, the original plan required buyers go delinquent, apply for a 3-month “trial modification” and as long as the trial payments were made on time, they would qualify for a permanent modification. As The Huffington Post points out, few ever received a permanent modification and many ended up being foreclosed on.

From the start, there were many – myself included – who felt any TARP/bailout money that was to be given or loaned to U.S. lending institutions, should be tied directly to the homeowners that were requesting assistance: provide assistance, receive government funds.

Yes, lenders were provided with a financial incentive to assist people, but it was $1k here, $1k there – nowhere near the money they were simply handed to remain solvent. Without any real incentive to help people, the banks did nothing more than delay the inevitable, while prolonging the crisis.

Now that HAMP is gone and the banks have even less incentive to help struggling homeowners, what’s next? The problem is far from over and people will continue to require assistance for years to come.

Here in Detroit this week, it was announced that home prices hit their lowest mark since 1993 – proof that while Wall Street might be in recovery mode, the real estate market isn’t. Unemployment is still high and as Robert Reich points out, a double dip recession seems inevitable. Clearly, this problem is here to stay for the foreseeable future.

A plan to provide incentives for principle reductions is still the way to go, in my estimation. Of course, with the banks seemingly out of trouble financially, it’s far less likely now than it was at the peak of the recession that this will be an avenue they’d explore.

As far as tying assistance to federal funds, well, that’s likely only going to work with Fannie & Freddie… until they’re phased out. Still, an overwhelming majority of U.S. mortgages are held by Fannie & Freddie, so that could provide significant assistance for the time being.

Recently, we’re seen both GSE’s reject short sales, due to the borrower still being current on their payments. The rationale we’ve been provided with goes something like: “someone can’t pay on time AND have a hardship – it’s not possible.” Ridiculous. As a matter of fact, over half of our clients are still on time when they initially contact us. They’ve been transferred for work, have an ailment that prevents them from living in their current residence or simply see the writing on the wall and are trying to be pro-active, before they’re forced to go delinquent. As shocking as this might sound, most people want to honor their obligations. Sadly, Fannie & Freddie won’t have that. “Go late, then call us.”

Our congressional representatives have been working to overturn the “delinquency mandate”, however even they’ve grown frustrated over the lack of response from their contacts with Fannie & Freddie. Hmmm, wonder if those lines of communication would suddenly open up if funding were cut off – you think?

Granted, HAMP was designed to assist with loan modifications, not short sales, but the basic problem is the same – the threat of having one more vacant home on the rapidly depreciating block. Tying funds to either keeping people in their homes or moving new families in prior to foreclosure, will benefit everyone.

Simply put, there has to be a way to assist people in a more productive way than HAMP did. Clearly a program is needed, but one that makes sense. We’ve already missed out on one opportunity to provide real, legitimate assistance to homeowners – and really, to entire communities. Let’s not miss out again…