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The US Federal Government tweaks HAMP further while foreclosures continue to increase

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By : John Smith    99 or more times read
The Federal Government is pulling out its hair while it seeks new ways to prevent Americans from defaulting on their home loans. President Obama’s much vaunted program for Home Affordable Modifications (HAMP) isn’t working well, and over half the beneficiaries who had their monthly repayments downsized are still not making payments.

Mortgages where the owner owes more than the value of their home are on the increase making it even harder for distressed owners to get out of the mess they find themselves in. Around 25% of all home mortgages were underwater at the closing of 2009, and Barclays Analyst Jason Goldberg thinks another 5% will join the negative equity club in the first half of this year. California, Florida, Nevada and Arizona already have between one third and two thirds negative equity mortgages, with more states set to join them.

Will the President’s latest scheme to pay banks to reduce outstanding mortgage quantums to home values make a difference? Right now he’s chasing a moving target, and the question is, can the American taxpayer afford it? Thus far HAMP has hardly has any impact. By February 2010 the burden of only 175,000 distressed mortgages had been permanently downsized, most of the time affecting interest rates only – and just over half of these still ended up with borrowers entering default.

The latest federal proposal goes further than just asking nicely. This time the government is offering lenders incentives of between 10 and 21 cents per dollar reduction of primary loans, and a corresponding smaller 6 cents per dollar on secondary ones. Distressed and unemployed lenders may also qualify for a reduction in their installments until their situation improves.

Although this may not be what banks desire, analysts argue that the latest program is way better than being forced to write down loans, or sell at a loss at a foreclosure auction. To date banks have been reticent to give way to government pressure, because they believed that either the repayment trend or housing prices would bounce back. Things may be changing as I write, as Bank of America introduces a similar program to avoid an expensive settlement over predatory rates.

Maybe HAMP will help some borrowers keep their homes, but it certainly won’t replace the need for strong economic upturn. Creating work must be the focal point, say RBC Analysts, not fiddling around with socialistic programs. That way, borrowers will be able to afford their payments again, as opposed to joining a demeaning queue.
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