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HAMP, HARP, HAFA-Making Home Affordable
Created: 8/26/2010
August, 2010 – Sounds like someone clearing their throat, getting ready to say something important, doesn’t it?
Making Home Affordable is part of the current Federal Administration’s effort to stabilize the housing market and help struggling homeowners get relief and avoid foreclosure. The three major components each address a separate area of this critical challenge facing the housing sector of the US economy.
HAMP – The Home Affordable Modification Program provides eligible homeowners the opportunity to modify their mortgages to make them more affordable. The eligibility factors are primarily about the homeowner and their documented difficulty in continuing to pay their mortgage. Mortgage balances above $729,750 are not eligible. The program reduces monthly mortgage payments by reducing the interest rate and less frequently, the principal balance.
Only about 19% of the mortgages in serious difficulty have been modified under HAMP. For modifications made in 2008 and 2009, 53% were again delinquent or in some stage of foreclosure and only 41% were still performing as of March 31, 2010.
Clearly, this has not been an effective program for restoring stability to the housing market. The mortgage servicers and investors are generally not willing to make modifications that reduce monthly payments in any meaningful way.
HARP – The Home Affordable Refinance Program gives homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. Eligibility for this program is limited to residential one-to-four unit properties where the mortgage is a Fannie/Freddie mortgage with loan to value ratio between 80-125%, and is current. In 2009, there were approximately 200,000 refinancings under HARP, far short of the original goal of helping 5 million homeowners.
This Federally defined eligibility is merely a suggestion, and only the loan servicer can determine if the borrower qualifies. Again, the kink in the pipe is a result of reluctance of mortgage servicers to co-operate with these Federal “suggestions”, which would reduce their current receipts and margins.
HAFA – The Home Affordable Foreclosure Alternatives program is the program of last resort for homeowners who are not eligible for (or have not been able to stay current on) HAMP or HARP. HAFA offers homeowners, their mortgage servicers, and investors an incentive for completing a short sale or deed-in-lieu of foreclosure. With these options, under HAFA, a homeowner leaves their home to transition to more affordable housing and alleviate the mortgage debt they owe.
The eligibility for HAFA is generally restricted to purchase money loans and homeowners who are either not eligible or have failed to complete the trial for a HAMP, have become 2 months delinquent on their HAMP, or request a short sale or deed-in-lieu. HAFA was only fully implemented on April 5, 2010, so it is premature to evaluate its effectiveness in preventing foreclosures.
The obvious defect in all of these Federal “suggestions” is that they lack the force to have a significant impact on the continuing foreclosure crisis. What might be more effective is a transition to a regulatory (rather than suggestive) basis for implementation, or a transition to applying the incentives to the homeowner side of the equation, rather than continuing to grease the greed of “too big to fail” financial institutions with TARP (Tax Assets Ripped from the People) funds.
Paul Sieving is a Realtor® with CENTURY 21 Gold Dust Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
