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THE FIGHT AGAINST FORECLOSURES: HAMP VS PRIVATE
The proposed term paper would go further into detail about the different types of private programs available for home modification and how they compare to Obama’s HAMP idea. It would further give exploration to the options that are available to borrowers at risk of losing their home and it would explain the process of a foreclosure and how it would be in all Lenders best interests not to let their investments go there.
Since the housing bubble burst in the early quarter of 2007(BusinessWeek), America has suffered great losses; both financially and emotionally for homeowners. Many lost homes and jobs have led the economy to become as brittle as thin ice, and the fight for survival has commenced. Since then, there have been many modification programs created to assist homeowners in danger of losing their homes. I will be discussing the government’s modification program “HAMP” and the modifications that are offered privately through banks such as Chase, Citibank, Bank of America, and Wells Fargo. Apart from loan modifications, there are other options that homeowners have instead of going into foreclosure such as negotiating a short sale, offering the lender a deed in lieu, or even trying to reach a forbearance agreement. A foreclosure is a long and lengthy process that can consume a lot of time and money for the owner and the lender. I will discuss the process of a foreclosure from the beginning to the end.
“HAMP” or “Home Affordable Modification Program” was created by the Obama Administration to help salvage homeowners from going into foreclosure. There are certain guidelines that a borrower must meet in order to be eligible. Some of the criteria consists of the borrower being delinquent, borrower must occupy home as primary residence, and the mortgage should have been acquired on or before Jan. 1, 2009, and the principal balance must be no more than $729,750. After eligibility is established, the lender will adjust monthly payments to about 31% of gross income, extend the life of the mortgage, or defer the interest. (Fannie Mae).
But what if there is a low income? Then that is where HAMP fails. When 31% of minimal income is calculated, that is where the majority of homeowners get disqualified. With the current unemployment rate at 8.7 %( [url removed, login to view]), it’s no wonder why so many Americans are not eligible and this is why they turn to modifications in the private sector.
Lenders such as Chase, Citi, Bank of America, and Wells Fargo, have a lot more to lose through foreclosures than the actual homeowners. Losing hundreds of thousands homes to foreclosures could cost banks a lot of money that could potentially put them out of business. This is why they have stepped in and created their very own foreclosure prevention initiatives that can approve modifications much more easily. In the following diagram obtained from [url removed, login to view], it is obvious that more private modifications have been issued than HAMP. The fact that banks have had a greater positive impact on loans signifies that somewhere in the HAMP program there is a flaw and is considered no good.
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Above is a chart obtained from “[url removed, login to view]”, demonstrating the total modifications made through banks versus HAMP. The total modifications of banks exceeded those of HAMP by over $2.8 million.
Although a home modification is not the only solution to evade foreclosure, it is the most favorable because the homeowner’s advantage to stay in the home and pay less outbids any other options. But when modifications are not possible, trying to negotiate a short-sale would be a good idea. According to Bank of America, “The goal of a short sale is to help you avoid foreclosure
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