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IMF: HAMP Was Not Designed To Succeed

mortgageorb.comApr 10, 2012

Problems in the design of the Home Affordable Modification Program (HAMP) have resulted in a "disappointing performance," according to a new report issued by the International Monetary Fund (IMF).

According to "Dealing with Household Debt," published in the April edition of the IMF's World Economic Outlook, HAMP got off on the wrong foot due to "limited incentives for the parties to participate in the program and tight eligibility criteria for borrowers have resulted in low take-up." As a result, many creditors had no reason to embrace the program, and servicers had "little incentive to initiate a costly renegotiation process, given that they are already compensated for some [legal] costs when delinquent loans enter foreclosure."

The IMF notes that many lenders chose to prefer forbearance and foreclosure, since HAMP borrowers showed a "high probability" of defaulting despite receiving a loan modification.

"Securitization presents additional coordination and legal problems," the IMF adds. "In addition, conflicts of interest may arise, for example, when second-lien holders forestall debt restructuring."

The IMF was skeptical that enhancements to HAMP have helped improve the program, pointing out that the absence of Fannie Mae's and Freddie Mac's participation in HAMP has complicated matters further. The organization also questions whether HAMP's focus has been accurate.

"Importantly, the modifications focus on bringing a narrow definition of the mortgage repayment burden down to 31 percent of monthly gross income rather than the total repayment burden (including other installment loans and second mortgages)," says the IMF. "As a result, most borrowers remain seriously constrained even after the modifications, with after-modification total debt repayment burdens averaging 60 percent of monthly gross income and the after-modification loan-to-value ratio sometimes actually increasing. This helps explain the high redefault rate on the modified loans, which currently averages 27 percent after 18 months and as high as 41 percent in cases where the monthly payment reduction was less than or equal to 20 percent."

For its part, the IMF weighed in favor of principal reductions to hep struggling homeowners.

“Principal reductions are likely to reduce foreclosure rates and, if implemented on a large scale, would support house prices substantially - helping to eliminate the overall uncertainty weighing on the housing market via the shadow inventory,” says the IMF.

Back to April 2012 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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