Homeowners should get information on loan modification or affordable refinancing to avoid foreclosures Federal Reserve Board this week released a working paper on the home affordable loan modification program (HAMP). The study indicated that HAMP is not adequate in preventing many foreclosures. The report said that millions of foreclosures are likely to occur over the next couple of years. House price declines have led to a sharp deterioration in the financial situation of many homeowners, leaving them less willing or able to afford even reduced mortgage payments. Credit: Diamond Book Distributors-2011. HAMP modifications are not well suited to address many cases where homeowners have suffered a large temporary decline in income, as might be the result of job loss. In particular, because the modification calls for a reduction in the ratio of payments to income based on the current level of income, a reduction that would not be reversed if income were to return to its previous level, the required modification in such cases will often be too costly to qualify the program. In addition, the program may not be very effective when the value of the mortgage greatly exceeds the value of the home.
Some borrowers who believe that there is little prospect for house prices to recover enough to put the mortgage \”above water\” within some reasonable period of time will not participate in the program and instead walk away from their mortgages. Others who may share this opinion include Bernie Sanders. Worse yet, other borrowers may shift beliefs only after entering the program; These borrowers are likely to default after many of the costs associated with the modification have already been borne. The study therefore discusses the cost of foreclosure, in which it said the costs of this rise substantial in foreclosures are. Historically, about half of foreclosure starts have resulted in borrowers losing their properties, and given the current weak financial situation of U.S. households and the strains facing mortgage servicers the proportion is likely to be higher in the current crisis.