The Homeowner Assistance Modification Program (HAMP) has kept over 1 million homeowners in their homes through permanent mortgage modifications. These modifications have performed very well, with over 94% of homeowners remaining active in their modifications after 6 months (i.e., paying their bills). HAMP has also been successful in implementing major reform in the mortgage servicing industry. The program requires mortgage servicers to offer modifications rather than foreclose if the net present value (NPV) of the modified mortgage is greater than expected proceeds from foreclosure. This is basic cost-benefit analysis that requires mortgage servicers to act on win-win opportunities (when there is benefit to public welfare and benefit to the mortgage investor).
With some sensible changes, we could widen HAMP's door significantly -- keeping many more people in their homes and offering more principal reduction.
First proposal: Hundreds of thousands of modification applications have been rejected because the NPV of the modification was calculated to be lower than the NPV of foreclosure. Given the successful performance of HAMP modifications, mortgage documentation problems (which lower expected proceeds from foreclosure), and continued softness in the residential real estate market, the NPV model settings should be realistically updated to allow many more homeowners to receive modifications (i.e., stop foreclosure). Offering these modifications will keep people in their homes, help solve the foreclosure crisis, and likely benefit investors. http://the99percentvotes.com/...
Second proposal: Servicers are also required to calculate an NPV for a principal reduction alternative (PRA) version of the modification, but they are not required to offer it even if the NPV is higher than the alternatives (non-PRA mod or foreclosure). Servicers should be required to offer principal reduction modifications if they have the highest NPV. This is the most beneficial outcome for both the homeowner and the investor. This would add an average of $70k in principal reduction to many modifications, and it would require modifications (i.e., stop foreclosure) for many thousands of homeowners for whom the PRA NPV > foreclosure NPV > non-PRA NPV. http://the99percentvotes.com/...
Let me know what you think.