| p>In case you missed the news, the government | | | | amortization periods will be extended to 40 years to |
| wants to keep you in your home; like it or not. They've | | | | reach the proper ratio |
| employed several programs to carry out the task, | | | | 3. If after completing steps 1 and 2 DTI ratios still have |
| each seemingly more aggressive than the next. | | | | not reached 31 percent, lenders may forbear principal |
| Personally the whole thing reminds me of a bad pot of | | | | at zero interest until ratios are met |
| soup. Chef Obama and his sous chef Mr. Geithner | | | | 4. the federal program will supplement lenders efforts |
| keep adding salt and pepper until the whole mess is | | | | by sharing the costs involved with reducing ratios from |
| inedible, all the while wasting the remaining ingredients in | | | | 38 percent to the desired 31 percent ratio |
| the kitchen leaving cupboards bare and guests unfed. | | | | 5. modifications will be kept in place for 5 years. After |
| The latest push comes in the form of the Home | | | | 5 years interest rates can be increased by 1 percent |
| Affordable Refinance Program or HAMP. Per the | | | | each year to the conforming loan survey rate in place |
| Treasury press release, the $75 Billion program aims | | | | at the time of modification. |
| to prevent foreclosures and help responsible families | | | | Incentives for Success |
| stay in their homes. The program will do so by | | | | As incentive to loan servicing companies, the HAMP |
| partnering directly with the lenders carrying | | | | program will reward each servicer with an upfront fee |
| non-performing loans, via the GSE's (Fannie and | | | | of $1,000 for each successful modification made within |
| Freddie), FHA, and the FDIC. | | | | the guidelines. Further servicers will be given an |
| How does it work you ask? HAMP will reach from 3 | | | | additional $1,000 per year up to 3 years, called a "Pay |
| to 4 million at-risk homeowners using a five prong | | | | for Success" incentive as long as the borrower |
| strategy. Here are the highlights: | | | | successfully remains in the program. These success |
| Five Prong Strategy | | | | incentives will also be available to servicers who |
| 1. Create clear and consistent guidelines for loan | | | | modify, FHA, VA, or agriculture department loans, and |
| modifications | | | | or refinance loans according to the Hope for |
| 2. Require that banks use the US Treasury guidelines | | | | Homeowners programs. |
| when modifying loans | | | | Lenders and servicers willing to reach out to |
| 3. Allow judicial modifications during bankruptcy when | | | | borrowers not currently in default may receive an |
| borrowers have no other options | | | | additional $2,000 incentive payment ($1,500 to |
| 4. Require strong government oversight at banks to | | | | mortgage holders and $500 to servicers) by |
| monitor compliance | | | | completing successful loan modifications before a |
| 5. Strengthening FHA programs by providing support | | | | borrower misses a payment. Borrowers themselves |
| for local communities | | | | will receive further incentive by successfully staying in |
| Who is Eligible for the Program | | | | the modification program. An additional $1,000 per year, |
| * At risk homeowners suffering from serious financial | | | | up to five years, will be given to borrowers going |
| hardship. These hardships includes financial shock from | | | | straight towards reducing the principal balance on the |
| temporary loss of income, those experiencing | | | | mortgage loan. |
| increases in monthly expenses, and/or those suffering | | | | Addressing Further Value Erosion |
| from payment shock resulting from an interest rate | | | | One of the outstanding issues concerning lenders is |
| adjustment or reset on their mortgage. The at risk | | | | the risk of further value erosion if modifications fail and |
| definition also applies to homeowners deemed | | | | they are forced to ultimately foreclose at a later date. |
| "underwater" (with a combined mortgage balance | | | | To address that issue the US Treasury Department |
| higher than the current market value of the house). | | | | will fund up to $10 Billion dollars for a program set to |
| * Homeowners facing imminent default of their | | | | partially offset losses realized by lenders who |
| mortgage. You are not required to be behind on your | | | | experience steeper losses on foreclosed loans after |
| mortgage payments to be eligible for a loan | | | | completing a modification. Structured as a simple cash |
| modification. Quite the opposite in fact. Studies show | | | | payment, it will be received by mortgage holders on |
| that modifications are actually more likely to succeed | | | | each modification, linked to the declines in the home |
| when done by borrowers before they miss payments. | | | | price index. |
| Therefore regardless of whether you are current or | | | | Junior Liens |
| behind on your mortgage, you may call your lender to | | | | Although junior lienholders are not required to |
| request a loan modification. | | | | participate, lenders and servicers participating in the |
| * Owner occupied homeowners ONLY! No flippers - | | | | HAMP program will receive additional incentive to |
| The government calls this a "common sense | | | | extinguish junior liens in order to reduce the overall |
| restriction." If you are a speculator, which I assume is | | | | indebtedness of the borrower. Servicers will be |
| their broad term for investor, and/or a house flipper | | | | reimbursed for the release according to a specified |
| you are out of luck when it comes to the HAMP | | | | schedule and will receive an additional $250 payment |
| program. This isn't to say banks won't modify your loan | | | | for obtaining the release from a valid second lienholder. |
| too, rather the incentives from the HAMP program will | | | | Thoughts and Issues |
| not apply. | | | | Preferential treatment towards one class of borrower |
| * FHA conforming loans ONLY! No jumbo mortgages - | | | | and geographic inequity across the 50 states are the |
| Another of the so called "common sense restrictions" | | | | two most glaring problems with the HAMP program. |
| the HAMP program does not help homeowners who | | | | Although well intended and very much needed in the |
| needed jumbo loans when purchasing their home. The | | | | residential markets, the program will continue to be |
| incentives in the program are targeted towards helping | | | | viewed as biased and raise resentment among the |
| buyers within the FHA loan limits. To clarify, it does not | | | | majority of borrowers, currently not eligible for the |
| require that a homeowner have an FHA loan, simply | | | | program. Clearly directed towards homeowners in the |
| that the loan balance fall within the loan limits of the | | | | most dire of circumstances and with the fewest |
| FHA program guidelines. | | | | alternative solutions, wealthier borrowers and more |
| * High debt level borrowers who agree to enter HUD | | | | sophisticated professional investors are left to fend for |
| certified consumer debt counseling - This is a special | | | | themselves. |
| provision for individual homeowners who also meet the | | | | If lenders and the federal government encourage |
| other provisions of the program. If their back end debt, | | | | HAMP qualifying borrowers to place themselves in a |
| which includes all monthly expenses in addition to their | | | | better financial position by changing the terms of their |
| mortgage, is equal to 55 percent of more of their total | | | | agreed up on loan, and then paying them to do so, |
| income, homeowners will be required to enter debt | | | | shouldn't wealthier borrowers and investors be |
| counseling to receive a loan modification. | | | | encouraged to do the same? If one group of |
| How it Works | | | | borrower is "villainized" while others are forgiven for |
| The simple goal of the program is to keep | | | | the same behavior isn't it human nature for that first |
| homeowners paying on their mortgages. The theory is | | | | group to protect themselves against perceived unfair |
| that most defaults are not a result of homeowners | | | | attacks? |
| choosing to walk away because they owe too much | | | | The message of the current administration is hope and |
| on their home, rather a belief that these defaults occur | | | | change. Those of us encouraged by the message |
| because the borrower cannot meet the monthly | | | | hoped that change would apply to all of us equally |
| financial obligation. By adjusting monthly payments, | | | | when reflected in public policy. Their required agenda |
| fewer defaults will occur and housing markets will be | | | | includes the stemming of a financial meltdown in the |
| stabilized. | | | | financial markets driven by catastrophic losses in the |
| The government and lenders will share the effort to | | | | residential real estate markets. Unfortunately the |
| lower monthly mortgage payments to between 31 | | | | piecemeal approach to the problem has only |
| percent and 38 percent of a borrowers' gross monthly | | | | encouraged more bad behavior by many who feel left |
| income. The first burden will be on the lenders with the | | | | out or villainized. |
| government batting clean up. Steps involved in | | | | In theory we all pay taxes and we all have an equal |
| reaching this goal are as follows: | | | | vote. In practice the policies and programs which |
| 1. Lenders will reduce interest rates on the current loan | | | | spend tax payer money and address issues facing all |
| to as low as 2 percent hoping to reach DTI ratios of | | | | groups of American citizens should be available equally |
| 31 percent | | | | and without bias or should not exist at all. |
| 2. If interest rate reductions don't accomplish the goal, | | | | |