Broadview Mortgage Reports: Home Affordable Modification Program (HAMP) Mortgages Expected to Increase

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Home Affordable Modification Program (HAMP) Mortgages Expected to Increase

The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) recently released a quarterly report that audited the Home Affordable Modification Program (HAMP). The report was released by SIGTARP on January 29th, 2014 and can be obtained on . The report maintained that almost 900,000 American homeowners are currently enrolled in the program, and they will experience higher monthly mortgage payments once their current subsidy, provided by the United States government, runs out. The HAMP program featured a $75 billion subsidy to pay off mortgage lenders in return for them to modify a number of borrowers’ mortgages until the money ran out in an effort to avoid (at least) this portion of homeowners losing their homes to foreclosure throughout a time when home prices were plummeting and unemployment was on the rise. It would also loosen the need for banks to acquire and sell properties that were foreclosed upon which required substantial work and planning on the parts of those banks as well. The rationale for the United States government creating the program was that if banks could receive emergency funds from the government to cover their poor lending practices, so should homeowners who fell victim to those same predatory loans.

The HAMP Program required borrowers to go through a trial phase followed by a permanent phase. The trial phase lasted 90 days and required the homeowner to make all three of their monthly mortgage payments on time. After the borrower could prove that they could make three payments in a row on time, they would enter a permanent phase that would last up to five years. The permanent phase would allow for the total monthly mortgage payment, including property taxes, interest, property insurance, and principal, no more than 31% of the borrower’s total pretax household income. To facilitate this, interest rates were reduced, terms were extended, and mortgages would at times include principal forbearance and principal forgiveness. Many homeowners received rates as low as 2% under the HAMP program. Homeowners that made timely payments were eligible for $1,000 reduction in principal each year that they remained in the program. On the other side of things, investors and mortgage lenders would receive financial incentives from the government for lending to borrowers under this program.

The SIGTARP report revealed that despite the immense effort to avoid homeowners missing their payments through the implementation of the HAMP program, the rate of defaulting has still been high regardless. The SIGTARP report also claimed that if interest rates rise for these homeowners, which they are expected to, the default rate may continue to increase.    

Thorough statistics that were taken throughout the HAMP program support the prediction that default rates may continue to rise. Almost 2.1 million Americans entered the trial phase of the HAMP program between 2009 and 2013. Many of which were phased out for one reason or another. 37% of entrants were either removed or dropped out as they simply could not qualify for a mortgage in general. Of those that entered the permanent phase, a total of 28% re-defaulted on their mortgage loans. Only 23,790 of the loans were completely paid off, with almost 900,000 remaining as active borrowers. The report predicts that due to these statistics, after the five-year period is over (in the next few months) borrowers will continue to default on their loans as their interest rates will rise. The program maintains that after the five-year period is fulfilled, interest rates will rise each year by a full percentage point until reaching the national rate on a 30-year fixed rate mortgage at the time when the loan was modified. Rates could climb to a high of 5.4% for some HAMP borrowers. The rate increases will begin this year and will run until 2021.

Monthly mortgage rate increases are projected to increase between about $140 per month for HAMP modifications done between 2012 and 2013, and about $200-$250 for HAMP modifications done between 2009 and 2011. Figures can vary depending on location, and SIGTARP maintains that the payments will climb to a median of $989 per month according to their calculations. SIGTARP concluded that 87% of HAMP participants can expect to pay more on their monthly mortgage payments. Overall, the housing industry is worried that the monthly mortgage increases will set borrowers back and will not allow them to make their payments on time. On the other hand, other industry speculators think that many will be able to make their monthly payments as the economy has been improving and more Americans have steady jobs. Also, foreclosures in the United States are currently at the lowest it has been since 2005. It seems that with this situation, only time, and further research will demonstrate the amount of success achieved by the program, and whether it accomplished what it initially planned to do.

Broadview Mortgage values the opportunity to educate consumers to understand which direction that their current or future mortgage is taking them in. If you have any questions about the information herein, feel free to reach out to the Author, Brittany Williams, at Brittany(dot)williams(at)broadviewmortgage(dot)com. If you would like a quick pre-approval click here, and for assistance with down payment or buyer assistance, click here. You are also always free to give us a call toll free at (855) 692-7623.

Since 1988, Broadview Mortgage has distinguished itself through honest business relationships with clients, loyalty to employees, and commitment to empowering and educating those communities. Broadview Mortgage is a mortgage banker and direct lender made up of loan officers with years of experience in the firm and sheer excellence in customer service. The firm works to explore several financial solutions for its clients, for which they choose. Business is initiated and conducted on a word-of-mouth basis. Broadview Mortgage is a delegated underwriter for the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Federal National Mortgage Association (FNMA). Broadview is also approved to participate in several state, county and city programs for First Time Home Buyers.

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Brittany Williams