As the country continues to try and navigate through the tumultuous economic troubles, a question continues to arise throughout nearly ever phase of government and private enterprise when it comes to the recovery efforts. That question deals with whether the programs put in place are actually working.
The Home Affordable Modification Program, also known as HAMP, that President Obama supported last year may be falling far short of expectations. An independent government watchdog group is claiming that the $75 billion loan modification program may only help half the number of homeowners that the President had initially claimed would benefit by it.
Two sides of the same coin
Of course, the Administration has countered that the program is doing precisely what it was intended to do. The Administration official, Assistant Treasury Secretary Herbert Allison claimed that the program's success shouldn't be measure strictly on permanent home loan modifications.
Now, this can be argued until the end of the day as to what effect temporary modification will have to the other 1.5 million homeowners who will still face foreclosure and end up losing their homes. With this level of statement from the Administration's wing might beg the question then, what exactly is the measure of success for homeowners who can't manage to keep their homes at the end of the day?
It may simply be that the discussion lends itself to two sides of the same coin. The key word, them, is trial modification.
Trial modification on trial
HAMP apparently wasn't designed to merely help people save their homes. It was also to give the two parties -the homeowners and the lenders- the opportunity to bridge the gap of time between foreclosure and modification programs. Offering trial modification allows the homeowner to make every effort to get back on top of their mortgage payments while at the same time permitting the lenders the time required to carefully screen the homeowners for income verification and other factors that would be instrumental in determining the long-term benefits of such modification.
It wasn't the government's intention, as it would seem, to simply ignore the basic facts of business life; if a homeowner can't afford a modified loan, then there is realistically little that could be done to help them out in the first place. With that said, the Administration's initial estimates, then, were either overly optimistic, or misleading. Take your pick.
Redefaulting HAMP's worth
The Treasury department has explicitly expressed their estimates that 40% of homeowners who received, or will receive, assistance through this program will ultimately re-default on their loan, losing their home. This has led some of these government watchdog groups to question the viability of the program in the first place. If the initial estimates were that between 2.5 and 3 million homeowners would benefit from the program, and less than half of that have actually received assistance, and now the government itself is predicting that 40% of those homeowners will still default, then the question is whether or not HAMP was worth, or is worth, the excessive price tag.
Put another way, according to the Treasury department, about 170,000 borrowers have received permanent modification through the program so far. This is well short of the predictions and far short of being able to do anything serious that will help the housing industry get back on its feet.
What does this mean for the future?
The question continually arises about what this means for the future. In short, it indicates that the program is failing to have the lasting impact, not only for homeowners but also for the lending industry as a whole. HAMP was intended to stem the flood of foreclosures, but it appears to have only slowed it down.
The longer the foreclosure crisis extends, the more homes that are placed into the market, the less likely it will be that home values will begin to increase. Without an increase in value, refinancing, new home loans, and existing home loan sales will be hampered.
HAMP may not have failed completely, though, as 1.3 million homeowners are currently set up in trial modifications. Though, life support may certainly be an option.
David
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