Eversince President Obama announced the Making Home Affordable Program (HAMP) to attack the housing crisis head on, there have been many modifications to the program attempting to address the problem. Though more successful than what the previous administration was able to do, the program started out with the intent of helping only a fraction of the distressed. Subsequent revisions have sought to expand HAMP’s reach, but critics and subsequent evidence have proven HAMP to be too little, too late.
Under the latest change to the program, banks must offer 3-6 months payment relief to the unemployed. Banks are encouraged (but not required) to cut principle payments, which will be compensated by $75 billion in diverted HAMP funds.
The new guidelines are an attempt to address two major causes of foreclosure: unemployment and negative equity. The crisis started among subprime mortgages that reset but spread to other groups – especially those who lost their jobs or saw their housing values dive. When HAMP was hatched last year, it immediately met criticism because it did not adequately address either problem.
In the original program, HAMP did not demand that principal balances on loans be reduced – even though evidence available at the time showed that this was the most effective way to approach the problem, especially in view of the growing negative equity problem. Now banks will be offered incentives to reduce principle, but it is still not mandatory that they do so.
The crisis is far from over. Over the next two years, 8 million more foreclosures are anticipated. Pay-option mortgages will reset, making house payments so large homeowners cannot keep up. Many underwater homeowners finally give up, out of necessity or strategic decision. The current reinvention of HAMP is only expected to help a few hundred thousand people, a couple drops of water in a predicted tsunami of foreclosures.