Are Mortgage Modifications (HAMP) Helping or Hurting Homeowners?

In the midst of the housing crisis, President Obama took aggressive action by rolling out the Home Affordable Modification Program (HAMP) in February of 2009. HAMP was designed and promoted as being the key to helping between three and four million Americans keep their homes by thwarting foreclosure through loan modification. The program offers incentives to lenders to make loan modifications to distressed lenders. As of late 2010, however, HAMP's home-saving effects have been less helpful than advertised, and, in many cases, have left homeowners worse off than they were before entering the program.

HAMP was designed to allow distressed homeowners to apply for a loan modification from their lender. After a three-month trial modification, the homeowner would be allowed to request that the loan modification be made permanent.

Reports in mid-November stated that nearly 1.4 million homeowners had entered the program, but over half of those - 54 percent - had been subsequently rejected for a permanent loan modification because they ultimately didn't qualify. The practical effect of a rejection of a permanent loan modification is that the agreement between the lender and homeowner returns to the original mortgage terms.

This reversion to the original terms of the agreement is actually leading some homeowners directly to foreclosure. Upon being denied, homeowners are often responsible for paying the difference between the modified payments imposed during the trial period and the original payments plus interest. For many struggling homeowners who may have been able to initially avoid foreclosure, at either the original or modified loan amount, the rejection of a permanent loan modification and the receipt of a bill for the difference plus interest is just the shove they need to actually be pushed into foreclosure, which is exactly what HAMP was designed to avoid.

Compounding the lagging achievements of HAMP may be the lending institutions themselves. Many homeowners report that lenders are:

  • Losing important documents (sometimes multiple times)
  • Not responding to borrowers needs, questions and concerns
  • Outright lies, mistakes or misrepresentations about the availability of loan modifications
  • Promising loan modifications and then proceeding with foreclosure anyway
  • Proceeding with foreclosure on a homeowner who didn't even have a mortgage (in at least one noted case)

In their defense, lenders cite the deluge of requests and human error.

Homeowners Have Options

While loan modifications present needed relief for those homeowners who can get them, do other struggling homeowners have options? Yes.

For many, bankruptcy could provide homeowners both needed financial relief and the ability to keep their home. Chapter 13 bankruptcy may offer a borrower the ability to reorganize their debt, often into one affordable monthly payment. Chapter 13 also offers an added benefit - it halts the foreclosure process and allows homeowners to make up missed mortgage payments (arrears) over the life of the Chapter 13 bankruptcy payment plan. Some homeowners may even be able to remove their second mortgage through the Chapter 13 process.

HAMP was rolled out with the best intentions - and it has helped some homeowners, but bankruptcy may still provide many homeowners with the best option for saving their home.

There are limitations and restrictions on bankruptcy, so it is important to discuss your situation with a bankruptcy attorney. An experienced attorney can help you assess your options - bankruptcy, loan modification, or other remedies - and decide which option is best for you.