Are American Homes Affordable?

In order to address the key problems of the current financial crisis and restore the economy, the Obama Administration introduced the Home Affordable Modification Program (HAMP) earlier this year. The program has pledged $75 billion to retain the homes of 3 to 4 million Americans by preventing avoidable foreclosures.

According to the program, mortgage servicers who have received federal aid from the Troubled Asset Relief Program (TARP) need to modify the loan terms to help the housing loan borrowers avoid foreclosures.

As part of their role, the servicers requires to lower monthly payments for borrowers at risk of default by lengthening repayment terms, lowering interest rates and forbearing outstanding principal, along with other methods. Also, servicers can receive a $1,000 fee for each modification completed under the program.

According to the National Mortgage News, Bank of America Corporation (BAC - Analyst Report) is the biggest U.S. mortgage servicer, followed by Wells Fargo (WFC - Analyst Report), JP Morgan Chase & Co. (JPM - Analyst Report) and CitiMortgage, Inc., a part of Citigroup Inc. (C - Analyst Report).

The Treasury has published its first monthly service report early in August disclosing the progress of HAMP. According to that report, J.P. Morgan Chase is one of the better performers, with a participation rate of 20% of its eligible loan modifications since the implementation of the program in March. CitiMortgage’s participation rate was 15%.

However, neither Bank of America nor Wells Fargo & Co. has performed well in modifying loans for struggling homeowners as their participation rates were 4% and 6%, respectively. However, Saxon Mortgage Services, a subsidiary of Morgan Stanley (MS - Analyst Report), has put 25% of its delinquent loans into modifications.

Nevertheless, foreclosures and delinquencies are still on the rise and the Treasury is increasing its pressure on the mortgage companies to accelerate their tempo in modifying loan terms for the eligible borrowers.

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