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Friday, March 26, 2010

More on HAMP "Improvements"

by Calculated Risk on 3/26/2010 02:49:00 PM

There are four elements to the Making Home Affordable Program Enhancements:

1. Temporary Assistance for Unemployed Homeowners While They Search for Re-Employment

2. Requirement to Consider Alternative Principal Write-down Approach and Increased Principal Write-down Incentives

3. Improvements to Reach More Borrowers with HAMP Modifications

4. Helping Homeowners Move to More Affordable Housing
The focus is on principal writedowns, but possibly the bigger impact will be from the fourth point - the HAFA program (short sales and deed-in-lieu).

The temporary assistance is just that - temporary. Hopefully the homeowner will find a job otherwise most borrowers will be moved on to #4.
4. Helping Homeowners Move to More Affordable Housing
  • Increase incentives to provide more homeowners with foreclosure alternatives
  • Increase payoffs to subordinate lien holders who agree to release borrowers from debt to facilitate greater use of foreclosure alternatives including short sales or deeds-in-lieu.
  • The new payoff schedule allows servicers to increase the maximum payoff to subordinate lien holders to 6 percent of the outstanding loan balance and doubles from $1,000 to $2,000 the incentive reimbursement that is available to investors for subordinate lien payoffs, subject to an overall cap of $6,000.
  • Increase servicer incentive payments from $1,000 to $1,500 to increase use of foreclosure alternatives and encourage additional outreach to homeowners unable to complete a modification.
  • Double relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000
  • Help homeowners who use a short sale or deed-in-lieu to transition more quickly to housing they can afford.
  • I think this change will impact the most borrowers (I think principal reduction will be a limited tool). Treasury is doubling the incentive for 2nd lien holders (may still not be enough), and increasing the incentive for servicers and borrowers.

    This is the HAFA program that is scheduled to start in early April. This will probably only apply to around 3 million of the 8 million homeowners who are delinquent on their mortgage (initial guess). And probably only about half of those 3 million will receive a modification or use a short sale.