Government Projects Fewer Defaults on HAMP Mortgage Modifications

While some seem to think that all the Obama administration is doing is extending or delaying foreclosure procedures, others believe that, without these extensions, home prices would have fallen much further, much faster. Whatever you believe, the numbers seem to indicate that mortgage default and re-default rates are slowing.

In fact, Department of Housing and Urban Development Secretary Shaun Donovan believes re-default rates will be "substantially lower" than the 60 percent predicted by experts. Donovan told the National Association of Real Estate Brokers on Tuesday that the Home Affordable Modification Program "remains on pace to help 3 to 4 million Americans by 2012" even though many borrowers who were first offered temporary modifications through HAMP ultimately were not eligible for permanent ones.

More than 40 percent of those who first applied for HAMP were kicked out of the program because they didn't qualify. So far about 1.2 million homeowners have applied for HAMP and 529,000 were denied. Only 389,000 were offered permanent modifications and the rest are still waiting for a decision.
But Donovan told the brokers that fewer than 10 percent of the rejected HAMP applicants have ended up in foreclosure. The rest have entered alternative modification programs.

What if HAMP wasn't an option? Donovan pointed to Mark Zandi of Moody's, who has said, "helping another million homeowners could be the difference between a double-dip in house prices and continued stabilization."

Donovan believes that recent changes offering help to unemployed and underwater borrowers may have a "very good chance of helping us reach that goal."
He says that investors and lenders are "increasingly concluding" that it's "in their interest to write down the value of underwater mortgages rather than incur the substantial cost of foreclosure." With new HAMP and FHA refinance options the administration believes it will encourage "significantly more principal reduction than the government could provide on its own."

Donovan adds, "By lowering barriers to principal write-down, the vast majority of the burden of writing down these loans will fall where it belongs: on lenders and investors, not on the taxpayer."

Stemming the tide of foreclosures, as Zandi has stated, will help all of us. Giving the government time to find out what works surely seems like a better option than shutting down HAMP.

HAMP is not the only government program helping homeowners avoid foreclosure. In a recent report to Congress, the Federal Housing Administration said that it's seeing fewer insurance claims -- 19,310 fewer than projected in last year's audit, with $3.7 billion less paid out than projected. We won't know the final numbers until the next audit report later this year.

This could mean that taxpayers won't have to bail out the FHA, but continued success in this arena is dependent on avoiding a double dip in house prices. Stemming foreclosures is the only way to prevent that double dip, so for everyone's pocketbook, these government efforts to minimize foreclosures is good for the economy.

FHA Commissioner David Stevens believes we're nearing the end of a bad patch of loans. The bad loans were primarily made in 2007 and 2008. Loans that will go bad tend to go bad in the first two to three years, so the bad loans are tapering off and Stevens expect defaults to continue to taper off.

While HAMP was not the best solution, for a long time it was the only option out there. The program was ramped up quickly and not well thought out. Changes and improvements along the way appear to have slowed down foreclosures and helped stabilize the market.

We have a long way to go, but now that there are programs for unemployed and underwater homeowners, we'll probably see many more people finding a way to save their homes.

Lita Epstein has written more than 25 books, including "The 250 Questions You Should Ask to Avoid Foreclosure."

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