New Obama "HAMP" Plan Also Fails
Wednesday, June 24, 2009 at 1:22PM According to this Reuters story:
Estimates of loans moving through the Home Affordable Refinance Program, using Fannie and Freddie, have also fallen short.
"While generally accepted estimates were that around 1.5 to 2 million borrowers might avail themselves of this program, with many more potentially eligible, to date only about 13,000 loans have been completed according to press reports," Jay Brinkmann, MBA's chief economist, said in a statement.
Though the loans created under this program should increase, volume is unlikely to come near forecasts, he said.
In my experience in my practice, the HAMP seeks to accomplish fixed lower monthly payments through what I would characterize as "creative financing" techniques, such as extending the loan term to 40 years. The lenders actually can increase the principal balance owed under HAMP, by including their legal costs, arrearages, penalties and fees.
One of my cases owes $266,000 on a house that formally appraised for $140,000. The HAMP offer would put my client into a 40-year loan for almost $290,000 at a low interest rate, and offering a lower monthly payment. For example, this couple would be paying $1,450 per month for their $140,000 home, for forty years. This couple, who are at retirement age, have no ability to increase their income and the $1,450 payment will greatly tax their anticipated social security income, if it is even feasible.
The HAMP provides a windfall for the lender. All the loss is pushed to the homeowner. The lender agrees to take a lower interest rate, but earns interest for a longer period. In reality, what will happen is that this couple will pass away or default again long before they've re-established equity in the home. The lender will get the property back anyway. It is unclear how HAMP helps the situation except by moving the problem a few years down the road.
Sadly, these clients would be best off to declare bankruptcy and surrender the homes to the lenders, and then rent. But they love their homes and don't want to move. It is a difficult situation for an attorney who cares.
Reader Comments (1)
It appears that the "creative financing" characterized here bears a remarkable resemblance to predatory lending. It was my experience, at least in Texas, that even 30 year notes were not offered to retired borrowers on fixed incomes.
I find it objectionable that lenders are experiencing windfall given the loose underwriting, stated loans, and creative documentation that were so common to the mortgage business in recent years.