Strategic defaults will eventually crush HAMP, the administration’s homeowner rescue plan, as a new study reveals that the average participant is underwater by more than 50 percent. An article in the Huffington Post provides details of a June 24 report released by the Government Accountability Office.
With more underwater homeowners aware that It Will Take Years For Home Prices To Return to previous values, strategic defaults will continue to rise. Studies have shown that as home values reach 50 percent or more in negative equity, such as many of those participating in HAMP, the owners are much more likely to just walk away. And while the lower payments brought about by modification are temporarily helpful, increasing numbers of homeowners are choosing to protect their personal financial health rather than that of a bank, which in many cases, may have received a taxpayer funded bailout.
As more homeowners consider the options offered by HAMP, many come to the realization that Requesting A Loan Modification May Be Financial Suicide, as the ultimate winners seem to be the banks. With the damage that modification does to credit scores and the associated higher interest rates on consumer loans and credit cards as well as employment or insurance issues, many determine the reward not worth the risk.
Additionally, HAMP has proven ineffective in providing relief for the millions of homeowners promised. In a POST I did several weeks ago, I pointed out some of the programs glaring deficiencies; and with more applicants “kicked out” than accepted, the ultimate results do not justify the billions handed to banks to “entice” their cooperation.
Those who are denied acceptance to HAMP should consider themselves fortunate, for in the end, the program will be judged another failure of government to address the correct issue. Regardless of whether strategic defaults will eventually crush HAMP or the program just collapses under its own weight, the result will be the loss of billions of taxpayer dollars, and a problem that was never solved.
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John, I would love to disagree with you for the sake of many homeowners, but I have to confess I think you are 100% correct. IMHO virtually every program the government has created to fix the housing sector has been a tremendous waste of time. The Refi-Plus program was (is) one of the biggest jokes in mortgage history. In California, no one is underwater by a mere 5%!