Monday, June 21, 2010

HAMP Fails: Your Tax Money At Work

The Obama administration's HAMP program has proven to be an exercise in futility, and largely a waste of taxpayer dollars as only about 30% of the 5.7 million borrowers who are 60 days delinquent are eligible for the program. Of those who are eligible for the program, less than 350,000 have recieved a permanent modification to their home loan after successfully completing the trial period.

"As more people leave the program, a new wave of foreclosures could occur. If that happens, it could weaken the housing market and hold back the broader economic recovery. Even after their loans are modified, many borrowers are simply stuck with too much debt -- from car loans to home equity loans to credit cards. "The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting, a research firm in Irvine, Calif. "Even after the permanent modification, you're still looking at a very high debt burden." "

"The mortgage modification plan was announced with great fanfare a month after Obama took office. It is designed to lower borrowers' monthly payments -- reducing their mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Borrowers who complete the program are saving a median of $514 a month. Mortgage companies get taxpayer incentives to reduce borrowers' monthly payments.

Consumer advocates had high hopes for Obama's program when it began. But they have since grown disenchanted. "The foreclosure-prevention program has had minimal impact," said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group. "It's sad that they didn't put the same amount of resources into helping families avoid foreclosure as they did helping banks." "

"But analysts expect the majority will still wind up in foreclosure and that could slow the broader economic recovery. A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out."

Foreclosures in Oregon are on the rise, and the only help on the way from Uncle Sugar will largely benefit banks and large financial institutions. Taxpayers and the middle class will end up footing the bill for the housing bubble. It doesn't matter whether you rent, mortgage, or own your home outright. The suspension of mark to market accounting is a clear sign that protecting the too big to fail banks is the #1 goal of the Obama administration and the Federal Reserve.

"If we look at the HAMP program stats (see page 5), the median front end DTI (debt to income) before modification was 44.8% - about the same as last month. And the back end DTI was an astounding 79.8 (down slightly from 80.2% last month). Think about that for a second: for the median borrower, about 80% of the borrower's income went to servicing debt. And it is almost 64% after the modification. And that is the median - and just imagine the characteristics of the borrowers who can't be converted!"

It's no wonder that cold hard income verification is killing HAMP mods. It didn't exist when the loans were made to mortgage the home in the first place! Sustainable housing prices are still well out of line with median incomes -especially in the Pacific Northwest. No amount of government stimulus or taxpayer funded bailouts can escape the reality of actual wages and their relationship to the true nature of the market for 'owning' a home vs the debt to do so. The bottom is likely to be a long way down from here. Even the .gov source hints at 2012. Until the BAD DEBT is cleared from the financial system there can be no meaningful recovery in housing and real estate prices.

Caveat Emptor!!!



Dr Purva Pius


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