As published in Scotsman Guide's Residential Edition, May 2011.
These past couple of years, refis were big business for many mortgage brokers. With interest rates at record lows late last year and many adjustable-rate-mortgage borrowers facing loan resets, people were scrambling to lower their monthly mortgage payments.
But what about those millions of homeowners who can't refinance because of tighter underwriting standards or, in many cases, because they owed more on their mortgage than what their home was worth? According to financial-information provider CoreLogic, more than one-quarter of U.S. homeowners with a mortgage were underwater or almost underwater at the end of 2010.
Instead of just sending these borrowers on their way with a "Good luck — sorry I can't help you" if they don't qualify for a refinance, mortgage originators can point them to programs and information that may be able to help, such as the federal Making Home Affordable programs for loan modifications and foreclosure avoidance.
Although these programs — most notably, the modification program — have been under major scrutiny lately, it helps to look at usage data and to compare them to other modification programs out there.
The advent of Affordable
In February 2009, the federal government launched the Making Home Affordable program, which was part of the Emergency Economic Stabilization Act of 2008. The program introduced the following subprograms intended to help homeowners facing negative equity: the Home Affordable Refinance Program (H.A.R.P.) and the Home Affordable Modification Program (HAMP).
Also part of the program is assistance for homeowners with second liens, as well as the Home Affordable Foreclosure Avoidance (HAFA) program to help streamline the short-sale and deed-in-lieu-of-foreclosure processes by offering incentives to lenders and servicers, as well as homeowners.
By now, you likely know the details of these programs — and maybe you've helped clients get H.A.R.P. loans or helped finance a HAFA short sale. If not, you can find detailed information about them at makinghomeaffordable.gov.
Regardless of your exposure to the program, though, one thing you may not realize is that despite helping millions of homeowners lower their monthly payments and stay in their homes, one of the flagship subprograms — HAMP — is under fire.
Has it helped?
RealtyTrac data show that about 7 million homeowners have lost their homes to foreclosure since the housing crisis began. HAMP critics point out that the program hasn't benefited the number of homeowners it intended to. It was originally estimated that the program would reach 3 million to 4 million households.
According to the program's servicer- performance report, through this past February, more than 1.5 million homeowners have started trial modifications since the program's inception. Of those, the report says, more than 630,000 permanent modifications were started.
Do those lower-than-expected numbers constitute failure? Consider this before you make up your mind: According to a fourth-quarter 2010 report on the program from the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), 13 percent of loans modified through HAMP in the first half of 2010 were 60 days delinquent after six months, compared to 24 percent of loans in alternative modification programs. After nine months, the redefault rate was 17 percent for HAMP modifications, compared to 32 percent for bank-offered programs.
Page: 1 2 Next