Tuesday, January 26, 2010

An Update on the HAMP Mortgage Modification Program
HAMP - A Zero with its Wings Clipped.

Posted to the right is a picture of a Japanese World War II fighter, the A6M Model 32 "Hamp". The Mitsubishi Model 32 was nothing but a Zero with its wings clipped. By coincidence, the you could describe President Obama's HAMP (Home Affordable Mortgage Program) the same way. Here's a link to a good article at the MSNBC website, "Flaws Plague Foreclosure Relief Program" that sums up the program's performance through the end of 2009. Eight months into the program, and out of approximately 3.5 million potentially eligible foreclosure-bound mortgages, 850,000 of these loans have resulted in temporary loan modifications, but only 66,000 permanent modifications have been put in place.

The MSNBC article tracks what I've personally seen in our UAW clients. For most of them the HAMP modifications just don't make sense. First of all, most of the clients either make too much or too little money. Secondly, to enter into the modification would be increasing the principal balance on a loan that is already way over the value of the real estate. In many cases, it means tying the residents to a home that they'll never have significant equity in in their lifetime and under circumstances where they honestly should think about staying unencumbered so that they can move to where the jobs are going to be. It was recently reported that consumer advocate Elizabeth Warren was called to the White House to consult with President Obama. I hope that she can talk some sense into him that the banks don't necessarily know what's best for the economy. In fact, the banks don't even realize what's best for the banks. If the minority of these upside-down borrowers were allowed to reduce the principal of their home to its market value in Chapter 13 bankruptcy, it would give them incentive to stay in the home, keep it up and hope for appreciation. Terms could be inserted in the legislation to allow the mortgage company to share in that appreciation. This could be accomplished without a federal subsidy.

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