HAM(P)

HAMP (Home Affordable Modification Program), set up by the Obama Administration to encourage banks to voluntarily allow homeowners to modify the terms of the interest rates underlying their homes, has proven a failure by any account given other than that of the White House. Michael Barr, the Assistant Treasury Secretary, told a McClatchy reporter at the end of 2009 that, when it comes to mortgage modifications, “I think that if you go back and look at what we said we would do in February, we are on track to meet the president’s goals.” However, the fact remains that the administration’s HAMP initiative was supposed to renegotiate three to four million mortgages over the course of three years and so far, HAMP's $75 billion has helped permanently renegotiate about 32,000 mortgages. So at the end of the first year, they're about 1% of the way to the three-year goal. Why did it fail? Critics say the bureaucratic paperwork, lack of solid income verification and the fact that lenders were forced to use stringent 2009 lending standards to modify the loans all contributed to its failure. However, more fundamentally, most acknolwedged that cutting the interest rates underlying the homes makes no sense without cutting the principal because most of the homeowners are upside down. What does this mean for you? It will likely mean that more homeowners will continue to default causing housing prices to dip again. It could also mean HAMP 2, since Freddie and Fannie are so heavily invested in this program, which means adding to the deficit.