Lawmakers Deliberate HAMP Revisions

The House Financial Services' housing subcommittee held a formal hearing this week on the administration's new initiatives to provide help to underwater and unemployed homeowners through the Home Affordable Modification Program (HAMP).

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Most of the industry participants testifying on Capitol Hill applauded the Treasury's efforts to tackle these foreclosure triggers, but there are some who are questioning the logistics and the true effectiveness of the new program enhancements.

These enhancements, ""announced by the Treasury"":http://dsnews.comarticles/white-house-adds-underwater-unemployed-assistance-to-housing-program-2010-03-26 just three weeks ago, include principal write-downs on underwater mortgages, an FHA negative equity refinancing program, and temporary assistance for homeowners who've lost their jobs.

Andrew Jakabovics, associate director for housing and economics at the ""Center for American Progress"":http://www.americanprogress.org/issues/2010/04/underwater_borrowers.html Action Fund, said, ""HAMP has been criticized by its overseers for essentially trying to address last year's bad mortgages â€" subprime and other exotic loans whose terms were largely unsustainable from the start. In moving to offer underwater but otherwise creditworthy borrowers an FHA refinancing and in bringing principal write-downs into the HAMP modification process, the administration is attempting to tailor its response to address the current problem of prime loans going bad.""

Dean Baker, co-director of the ""Center for Economic and Policy Research"":http://www.cepr.net, stressed to lawmakers that wider use of principal write-downs would be a strong tool in deterring the growing problem of strategic defaults.

""Being underwater means that homeowners have relatively little at stake in keeping their homes,"" he said. ""The fact that such a huge number of mortgages are underwater guarantees that there will be millions of homeowners facing default and foreclosure.""

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But Baker noted that the housing bubble is still deflating and prices are expected to fall further still. He says when you crunch the numbers, many homeowners ""will be better off giving up their home,"" but rather than displace and uproot these families, Baker put forth a proposal to lawmakers that he says would be ""a much more efficient approach.""

Baker urged Congress to enact legislation that would ""temporarily change the rules on foreclosure"" to allow homeowners to stay in their homes, paying the market rent for a substantial period of time following foreclosure. By incentivizing lenders to negotiate, he says this ‘Right to Rent' law would ""immediately benefit all homeowners facing foreclosure, could be implemented at no cost to taxpayers, and would require no new bureaucracy.""

The Congressional Oversight Panel said in a ""report issued earlier this week"":http://cop.senate.gov/documents/cop-041410-report.pdf, ""The long delay in dealing effectively with foreclosures underscores the need for Treasury to get its new initiatives up and running quickly, but it also underscores the need for Treasury to get these programs right. Even if Treasury's recently announced programs succeed, their impact will not be felt until early 2011.""

Phyllis Caldwell, head of the Treasury's Homeownership Preservation Office, told the subcommittee that implementation details for the principal write-down option is expected by early fall, with the unemployment forbearance component likely within the next two months.

Rep. Maxine Waters (D-California), chair of the housing subcommittee, expressed concern over the voluntary nature of the principal write-down piece of the program and ""bank executives' testimony"":http://dsnews.comarticles/house-committee-holds-hearing-on-barriers-to-principal-reduction-2010-04-13 from earlier in the week that a large-scale principal forgiveness push is unfair to a majority of mortgage-paying homeowners.

""Increasingly, I am unconvinced that these voluntary programs are going to provide the assistance that homeowners desperately need,"" Waters said at the hearing. ""When these financial institutions find themselves underwater on their own real estate investments, they themselves often stop making payments,"" she said, citing Morgan Stanley's strategic default earlier this year on five underwater office buildings in San Francisco.

In his testimony, FHA Commissioner David Stevens pointed out that the ""housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone.""