US President Obama made an announcement of the Homeowner Affordability and Stability Plan in February 2009. He did so to assist thousands of homeowners who are in dire straits. The home owners benefitted from the plan and they were able to steer clear of the foreclosure by the process of refinancing or modification of their initial mortgages. Zack Childress also highlighted the process of avoiding the foreclosure.
There are two important entities:
- HARP
- HAMP
The Home Affordable Refinance Program (HARP), which assists homeowners in resorting to refinancing of the troubled mortgage loans into new loans with lesser rates.
There is the Home Affordable Modification Program (HAMP), to assist homeowners who are at an impending risk of default on the mortgages by making modifications to their loans.
In the present economic scenario, banks and servicers may get an advantage by studying the HAMP program.
Before going into a discussion of the features of HAMP, it would be of assistance to have a review of the government loan modification programs that precede HAMP. Many of the aspects highlight the points that one understands from preceding programs. Zack Childress real estate program is aware of the aspects and works out in the favor of the homeowners.
Servicers have a lot to do with the mortgage process. Their main work is to get the payments from homeowners and also to remit the payments to the investors. When the homeowner is found indifferent with regard to payment, servicers promote loss mitigation practices that are in the favor of the investors. More than 70 percent of the residential mortgages are handled by servicers and are owned by investors.
In December 2007, a plan was announced which allows reduction of the total amount of delinquencies and foreclosures. The plan is more widely understood as the Teaser Freezer plan. Particularly, servicers were allowed to go for a modification of the mortgages by freezing the borrower’s introductory rate for about five years.
There is the eligibility for the plan with a limitation to a certain group of homeowners. These homeowners should have acquired their homes via an adjustable loan product.
The homeowners need to have a good position with regard to their mortgage. These homeowners might not be able to refinance into a particular rate or a product that is government insured. There is also the restriction that the mortgage embraces a property maintained in a pool that is securitized.
When taking into account the modification of the mortgages, the pooling and servicing agreements proved a major hindrance. In majority of cases, there is a restriction on the servicers when it comes to modification of the mortgages and it needs the investor’s approval. Getting the clearance from the investor could be a major hindrance for the servicer.
So as to pinpoint the negative outcomes of the previous programs, including the difficulty of declining value of the houses, ex-President Bush made an announcement of the Hope for Homeowners Program (H4H) in October 2008. The borrower gains eligibility to the program when he opts for refinancing of the mortgage. Also, the homeowner should have a good DTI ratio that surpasses threshold ratio that amounts to 31 percent.
HAMP has major amends differing from the preceding programs
It surmises the issue of who handles the cost by allowing the US Treasury to take up 50 percent of the expenditure. This is done to cut off the borrower’s front end DTI ratio.
HAMP makes up an incentive for servicers of mortgages. Servicers can get added amount as compensation if the amends to the mortgages are current.
The investors and lenders are hugely compensated. This is possible when the house prices decline on mortgages for which modifications are done
HAMP modifies mortgages that are current but are at an impending danger of default.
It allows lenders and servicers to go for modification of mortgages at the danger of default. A proper standard should mitigate the servicers’ cost and variation in result. Thus foreclosures could be cut off to a considerable amount.
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