Bringing relief to distressed homeowners, the Obama administration recently announced the extension of its main foreclosure prevention program by 2 years. The Making Home Affordable Program, which was set to expire this year, will now run through the end of 2015.
The Making Home Affordable Program, introduced in 2009, is designed to help distressed homeowners in getting mortgage modifications and preventing foreclosures. It includes the Home Affordable Modification Program (HAMP) and other consumer protection programs such as the Home Affordable Refinance Program and the Streamlined Modification Initiative for homeowners with loans owned or guaranteed by Fannie Mae (FNMA - Snapshot Report) and Freddie Mac (FMCC - Snapshot Report).
After the initiation of HAMP, its terms underwent modification, following the failure to garner a positive response from mortgage servicers. Many homeowners were discouraged or constrained by paperwork requirements and restrictions that were charted to avoid waste and fraud.
Hence, the program terms were revised to expand the reach and include rental property loans and underwater borrowers. Further, incentive payments to servicers who lowered borrowers' monthly payments were tripled. Moreover, Fannie and Freddie were provided with more incentives to lower principal balances of underwater mortgages.
At the time of HAMP’s introduction, the officials had estimated about 3-4 million homeowners to benefit from it. However, even after making the changes, HAMP has not been able to achieve the desired results. As of Mar 31, 2013, only 1.1 million homeowners had benefited from HAMP. Further, merely $5 billion (on an approximate) of the total $30 billion assigned for the program had been spent.
Nevertheless, HAMP and other measures being undertaken by the government to prevent foreclosures are boosting the housing market. Last year, following the extensive reports of foreclosure abuses, the country’s 5 large mortgage servicers – JPMorgan Chase & Co. (JPM - Analyst Report), Bank of America Corporation (BAC - Analyst Report), Citigroup Inc. (C - Analyst Report), Ally Financial Inc. and Wells Fargo & Company (WFC - Analyst Report) – signed an agreement with the regulators and 49 state attorneys general to provide relief worth $25 billion to troubled homeowners.
Additionally, data released by RealtyTrac reiterated the housing market being on the road to recovery. The total number of foreclosed properties sold in first-quarter 2013 fell 22% from the prior-year quarter.
Hence, we believe that HAMP extension has come at a time when the need for bailing out borrowers is steadily decreasing. Home prices across the nation are rising, primarily driven by a modest economic recovery and a falling unemployment rate. With borrowers able to repay their mortgages, there are chances of lesser number of foreclosed properties entering the market.
Nevertheless, the extension of HAMP is going to aid many afflicted homeowners who are finding it difficult to repay loan balances. Moreover, the program has created many protections for homeowners as well as set standards for the mortgage servicing industry.