On January 27, 2012, the U.S. Department of the Treasury announced that
it is rolling out new enhancements to HAMP.
HAMP loan modifications were set to disappear at the end of 2012. The new
changes will extend HAMP another year to the end of 2013. This is good
news for people who are in or facing foreclosure. Since the average
foreclosure is taking longer to complete, extending HAMP means that more borrowers
will have an opportunity to try and modify their loans.
HAMP now includes a "second look" provision, which is a good
opportunity for borrowers who have already been denied a HAMP modification
due to having insufficient income. The new guidelines include a more flexible
set of debt-to-income criteria to make HAMP modifications available to
people with high secondary debt, like a second mortgage or medical bills.
Prior to last Friday's announcement, HAMP modifications were only available
for a homeowner's primary residence. The changes extend
HAMP eligibility to tenant-occupied homes and vacant homes that the owner wants
to rent. If affordable modifications can be issued for rental properties,
it may help stabilize neighborhoods by preventing some additional foreclosures.
As the press release notes, the foreclosure of investor-owned homes tends
to have a disproportionate impact on low and middle income families, many
of whom rent investor-owned properties. Additionally, foreclosed investment
properties are not rented out immediately after repossession, which decreases
the available supply of rental properties at a time when demand is high.
It also appears that Treasury is trying to get serious about principal
reductions, although without seeing new official guidelines, it is difficult
to tell who is truly receiving the incentive to reduce principal. Treasury's
press release indicates that it will triple incentives to investors who
reduce principal balances. However, most investors have very little to
do with the loan modification process. If, on the other hand,
servicers were given the incentives, it would make much more sense. More promising
is Treasury's overture to FHFA -- it has promised to pay incentives
to Fannie and Freddie if the GSEs allow principal reductions on the loans
that they own.
Overall, this looks to be a solid set of changes for HAMP, hopefully they're
not too little too late.