Just a year ago the current administration claimed that their ongoing efforts to help American home owners should relieve up to four million from foreclosure filings in the next couple of years. Just like many other attempts to stabilize current economical crisis in the country the efforts have failed. Given the track record of current administration it makes you wonder whether we should pay any attention to promises and claims coming from Washington, DC.
As foreclosure scandal hits the streets, it seems that all the ongoing efforts of current administration and politicians fall short of public expectations. The Home Affordable Modification Program (HAMP) which has offered reduce mortgage payments to approximately one million distressed home owners has managed to retain only 116,000 participants who have permanently reduced their payment amounts by modifying their loans. Over 60,000 were not able to continue with payments and were kicked off the program.
So what this HAMP program was all about and what were the fundamental flaws?
Please read carefully, you going to like this. In the initial design of the HAMP program borrowers were allowed to request three months of loan modification without presenting adequate documentation of their financials. They didn’t even have to prove their incomes to their lenders! If you ask me, that’s a program which is designed to fail. As a result, many of the protests appends have successfully managed to complete their three-months long trial periods by the later time simply couldn’t continue with the program due to the fact that their income statements did not meet the requirements of their lenders.
Due to the job market collapse many of the participants weren’t able to afford to go on with reduced payments because many of them have lost their jobs. This program was designed for depressed but more stable economy. Given the fact that the job market is deteriorating right in front of our eyes this program should have included provisions where sharp decline in household income would allow further adjustment.
The program offered up to 31% of mortgage payment reduction for its participants and that is a tangible help, but if you look closely, it appears as a teaser for people to try it. Other stipulations of the program are inflexible and lead to an inevitable foreclosure status.
HAMP wasn’t a bold stand against lenders. It doesn’t reduce principle; it only reduces your monthly payments. Everyone who knows how interest works also knows that reduced payment is a trap which leads to never ending payment plan. Can this type of hell be effective for people whose mortgages are under water? And better yet, should you be keep paying for your house if you never going to own it. Basically you are ending up being a renter and paying the bank for house upkeep.
It is quite clear that these types of duct tape solutions will do nothing to the existing foreclosure crisis. The matter is very simple it’s the economy that drives real estate market. It’s the economy that allows people to earn enough to become a responsible homeowner and it’s the economy that makes a nation financially strong. And that’s why HAMP is going up in smokes.