May 23, 2013
Will Mortgage Settlement Avoid Repeating Obama’s Foreclosure Failures?
Posted on Feb 11, 2012
By Paul Kiel, ProPublica
Some of the millions of homeowners who were rejected might be eligible for a second shot. Hundreds of thousands of homeowners were originally granted “trial modifications” through the program in 2009 and early 2010, only to be denied permanent modifications many months (and sometimes more than a year) later. Most of those homeowners started those trials by just giving their income information over the phone. They’ll be eligible to reapply, according to the proposed rules.
One of the recent changes to HAMP could reduce the cost of the settlement for banks—and leave taxpayers footing a chunk of the bill.
As part of [Thursday’s] deal, the five banks agreed to reduce billions in mortgage debt for homeowners in danger of foreclosure. Most of those principal reductions—about 85 percent according to Housing and Urban Development Secretary Shaun Donovan—will likely be for loans that the banks hold on their own books.
HAMP also has long offered investors incentives to encourage principal reductions. For loans owned by banks, the money goes right to them. In January, Treasury tripled those incentives. In cases in which a loan qualifies for HAMP, the government will now pay investors, often the banks themselves, up to roughly two-thirds the cost of a principal reduction.
So far, about 40,000 HAMP modifications have been done through HAMP’s principal reduction program at a median reduction of $67,196, meaning that roughly $2.7 billion in principal has been reduced. If the banks find HAMP more attractive because of the increased incentives, that amount might increase sharply, and HAMP could experience something of a renaissance.
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