The Home Affordable Modification Program (HAMP) launched by the Obama administration to help struggling homeowners avoid foreclosure, has been cited as being plagued with glitches and not at all effective in its goals. Despite the limitations associated with HAMP, the program has assisted half a million individuals to get mortgage modifications in order to better manage their monthly mortgage payments.

In autumn of 2010, Fitch Ratings, a New York based credit-rating agency, released statistics predicting that approximately 75 percent of borrowers who opted for HAMP mortgage modifications were doomed to fail within a years' time. That information was in direct contradiction to the insight provided by the Office of the Comptroller of the Currency and the Office of Thrift Supervision, that indicated HAMP participants were more likely to stay on track with their fiduciary responsibilities. The Treasury Department recently released information exposing the truth.

HAMP Facts

One of the misconceptions surrounding the program was based on the high default rates endured by those who qualified and received permanent mortgage modifications under the program. The reason for the high rate of default was blamed on the loans being unaffordable. Treasury Department information from December has shown that loss of income, not affordability, was the biggest culprit of the trend. According to the department findings, 60 percent of HAMP participants were dealing with a reduction in income, while 11 percent of the mortgage modifications were attributed to unaffordable mortgages. Unemployment and lack of income have long been considered the most prevalent features in preventing the housing market from fully rebounding.

The recent study the department conducted in regards to HAMP revealed the following information (Housingwire.com):

• In Los Angeles, California and New York City, New York, HAMP was the most successful.
• Of the HAMP participants who reported their ethnicity, 33 percent are white, 18 percent are Hispanic, 12 percent are African American and 3 percent are Asian.
• The common HAMP change reduced mortgage payments by approximately 40 percent or around $1,000 per month.
• Sixty percent of program participants who had a monthly reduction of 20 percent or less thanks to the modification, were two payments behind on their mortgages after 12 month. This is far greater than the 28 percent of program participants lagging behind who experienced reductions of 30 percent.
• The median household income for HAMP participants was $46,000.
• After the modifications took effect, the average loan principal balance was $232,000.
• Program participants had an average credit score of around 570.

GOP Fighting to Eliminate HAMP

While some people have been helped by HAMP, the numbers are nowhere near the 3 to 4 million initially targeted by the Obama Administration. As a result, House Republicans recently introduced a bill to repeal HAMP. If the law were to pass, the Treasury Department would be unable to actively participate in any more HAMP mortgage modifications. At this point Republicans have not provided any alternatives to the program cancellation.

Representatives Jim Jordan (R-Ohio), Darrell Issa (R-Calif.) and Patrick McHenry (R-N.C.), introduced the bill to the floor.

History of HAMP

HAMP was launched as a way to assist qualified mortgage holders to refinance their existing loans at lower rates. The ultimate goal was to curb the wave of foreclosure activity that swept through the nation. HAMP was part of the Financial Stability Act of 2009 and allocating nearly $75 billion in financial incentives for both lenders and borrowers.