The Great Recession and economic turmoil in 2008 and 2009 hit homeowners hard. Many homeowners couldn't keep up with their mortgage payments and their banks foreclosed on their mortgages. The federal government tried to act quickly to stop the avalanche of foreclosures.
Many homeowners got some much needed relief, but is it only temporary? As of mid 2011, we still don't have an answer, but the efforts continue.
HAMP: First Volley of Help
Under the Home Affordable Modification Program (HAMP), the government offers banks and other mortgage servicers various financial incentives making them more willing to adjust or modify troubled mortgages rather than foreclose on them. Once lenders agree to participate in HAMP, they're required to determine a borrowers' eligibility for loan adjustments before they can foreclose on their mortgages.
Does It Work?
For the most part, HAMP was meant to give eligible homeowners lasting and permanent relief. As of December 2010, over 1.4 million mortgages were modified through HAMP. Many of these homeowners enjoy reductions in their monthly payments.
However, the vast majority of these modifications are "trial" or temporary fixes only. That is, they were put into effect for a short time (usually three months) to see if both the homeowners and the banks benefit. Borrowers were supposed to receive permanent loan modifications if they submitted the proper documents and made monthly payments during the trial period.
The Results Are Mixed
In most cases this simply hasn't happened. As of mid 2011, only about 600,000 mortgages (PDF) have seen permanent changes. Also, banks and lenders haven't acted on tens of thousands mortgages that may be eligible for HAMP relief. Banks say the delays are due to the government's changing requirements and borrowers' failure to provide the required paperwork.
Homeowners who finally do get permanent relief get a pretty god deal, though. On average, their monthly payments are more than $500 lower. The lower payments are guaranteed for five years, and then borrowers get mortgages with fixed terms at current market rates for the rest of the life of the loan.
The banks' failures or refusals to make HAMP modifications permanent prompted government action:
- Executives from many of the country's largest banks and mortgage companies met in Washington with government officials to discuss the urgent need to make the modifications permanent
- Government representatives are sent to those same banks and mortgage companies to help them get any required information from their borrowers to make the process move quickly and smoothly
- Banks are given help in identifying which trial modifications didn't work or weren't effective and then finding alternative, permanent modifications
Government Penalizes Some Banks
In mid 2011, the government made good on its threats to fine or penalize mortgage companies that didn't bring their loan programs into compliance with HAMP. The US Treasury Department told (PDF) some of the nation's largest banks that they would not receive HAMP incentive funds owed to them unless they made substantial improvements in their HAMP programs.
The End of HAMP
HAMP's been controversial from the start. Many federal lawmakers opposed it because of its multi-billion dollar price tag, others because there was no guarantee it would work. After two years, there's widespread belief the program is a failure. Some in Congress want a formal investigation in 2011 into whether or not the program should be shut down.
In fact, a new federal law in the works calls for the end of HAMP.
Other Help is Available
For homeowners who don't qualify for HAMP (or even those who do) and are still having trouble keeping up with their mortgages, there may be other options. Many banks and other mortgage servicers have programs to help some of their customers avoid foreclosure. This may include refinancing or changing the terms of your loan.
Learn How Things Work
In addition, banks and lenders hold mortgage and debt-relief seminars all over the country. These seminars are usually free and open to the public, and they offer you information about and help with things like:
Next, TARP To the Rescue
- Federal and state laws and programs dealing with mortgage relief, including HAMP
Debt relief services to help you get rid of credit card and other unsecured debt
- How a foreclosure works and how to avoid it