My good friend, Julie Kay, recently wrote a South Florida Business Journal story on the mixed reviews for the government’s Home Affordable Modification Program, or HAMP, as legislators like to call it.
According to the article, HAMP is part of the U.S. Treasury’s Home Affordability & Stability Plan to save 3 million to 4 million homes from foreclosure. So far, approximately 360,165 trial modifications have started nationwide.
I was asked to provide my take on the program and will be quoted in the article. Here is a summary of my opinion as expressed to Julie:
One flaw with the program is that while a small percentage of individuals has seen their interest rate drop or the terms of their loan extended, the program does not provide for principal reduction.
A second flaw I identified is that the program does not extend to jumbo mortgages, second homes or investment properties– a group which makes up more than half of all homes.
So be sure to check out South Florida Business Journal entire story or if you are a subscriber, you can check it out at http://southflorida.bizjournals.com/southflorida/stories/2009/09/28/focus5.html
Here’s the entire story by SFBJ Julie Kay:
Three months behind on his mortgage, Hollywood resident Neil Reisner applied for a mortgage modification under the federal government’s $50 billion loan modification initiative.
But, he has been less than thrilled with the outcome. JP Morgan Chase, his loan servicer, offered him $300 off his $2,700 monthly mortgage. What he saves now will be tacked onto the back end of his mortgage.
Reisner, a journalism professor at Florida International University and father of two, says he will probably be forced into foreclosure.
“It’s disappointing,” he said of President Barack Obama’s housing plan. “They should reduce the principal. I could easily justify walking away just to get this albatross from around my neck.”
Reisner is not alone. The goal of the Home Affordable Modification Program (HAMP), part of the U.S. Treasury’s Home Affordability & Stability Plan, is to save 3 million to 4 million homes from foreclosure. So far, 360,165 trial modifications have been started nationwide.
Some people are getting meaningful reductions, allowing them to stay in their homes, according to Diane Cantor, director of Centro Campesino Farmworkers Center in Miami.
“People fall on their knees in joy” when they get modification details, she said.
Centro Campesino is one of the nonprofit agencies teaming up with Chase – which also handles mortgages issued by Washington Mutual and EMC Mortgage Corp. – to offer seminars on mortgage modification.
“We’ve seen people have their monthly payment reduced by $900,” Cantor said. “That’s the difference between staying in their homes and not staying in their homes.”
Many hoped that offering mortgage modifications to homeowners would stem the foreclosure crisis. But, modifications are voluntary, and some lenders appear to be participating more than others.
Bank of America, which has the largest number of delinquent loans in the HAMP program, had started trial modifications on only 7 percent of those loans by August, according to a new government report.
Chase has started loan modifications on 106,200 – 25 percent of eligible loans. Chase has opened 27 mortgage modification centers tnationwide, including two in South Florida.
“We’re trying to do a lot of outreach, to let the community know that we are here,” said Ertha Brathwaite, manager of the Chase Homeownership Center in Aventura. “We are getting quite a few people coming in. Based on the delinquency in Miami, though, you would expect more.”
Seven modification seminars are planned in South Florida in the next 45 days.
Homeowners can also walk into one of Chase’s mortgage modification centers or apply over the phone.
“At the centers, they are trained to handle mortgage modification,” Chase spokeswoman Nancy Norris said. “That is all they do. They don’t sell mortgages, they’re not dealing with credit card issues. They’re just trying to help homeowners stay in their homes.”
Chase can drop the interest rate to as low as 2 percent and extend the term of the loan, Norris said. However, she emphasized that the program is not about “principal forgiveness.”
“The biggest misconception in South Florida is that being upside down is a financial hardship – and it’s not,” Norris said. “Our goal is to make it affordable to the homeowner to make their house payment, not to reduce the principal.”
That is one of the key flaws with the program, according to legal experts.
“There is some urban legend that you’re going to see some massive amount of principal reduction,” said Roy Oppenheim, a foreclosure defense lawyer in Weston. “You’re seeing some reduction – about 20 percent – but it’s usually interest, penalties and stuff. On rare occasions, you see some principal reduction.”
Oppenheim said HAMP excludes jumbo mortgages, second homes and investment properties.
“That’s 60 percent of homes right there,” he said.
April Charney, a nationally recognized foreclosure expert, says the only real solution to the problem is for Congress to declare an emergency moratorium on foreclosures.
The HAMP program cannot work, said Charney, who sits on the Florida Supreme Court Foreclosure Task Force, because much of the mortgage paper has been bought in bulk and sold to foreign countries.
“Until we can do workouts with stabilized mortgages, we’re all going to lose,” she said. “Until we can reduce principal and interest rates, we are counterproductive.”
Still, on the ground floor, workers at Centro Campesino in Miami are optimistic about the HAMP plan. More than 20 people came to the first outreach meeting with Chase last month.
“We would like to do this with all the different lenders one day a week,” Cantor said. “It’s going to take a lot of things working at the same time to solve this foreclosure problem, but that doesn’t mean there isn’t some value in getting the mortgage reduced from 7.25 to 2 percent.” by Julie Kay
