Many borrowers are dropping out of the government’s Home Affordable Modification Program, prompting concern about another spike in foreclosures in the future.
HAMP was designed to lower borrowers’ monthly payments — cutting rates to as little as 2% for five years and extending loan terms to up to 40 years. But a significant number of people, saddled with too much debt, are rejected after the trial period. (hmmm..I wonder why?)
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The Obama administration says about half of those who fail to qualify for HAMP are receiving help via alternative loan modifications through their lenders, with about 7% of those homeowners winding up in foreclosure.
From the Associated Press:
“The Obama administration’s flagship effort to help people in danger of losing their homes is falling flat.
“More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That’s more than the 27 percent who have managed to have their loan payments reduced to help them keep their homes.
“Last month alone, 150,000 borrowers left the program — bringing the total to 436,000 who have exited since it began in March 2009.
“Administration officials say borrowers will get help in other ways. But analysts fear the majority will still wind up in foreclosure.
“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.
“Many borrowers complained that the banks lost their documents. The industry said borrowers weren’t sending back the necessary paperwork.
“Treasury officials have directed lenders to shift to a new system. They are now required to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders.
“The growing number of people leaving the program could lead to a new wave of foreclosures. If that happens, it could weaken the housing market and hold back the broader economic recovery.”
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