Hampered housing

30 January 2012 By Daniel Indiviglio

The Obama administration is using the last $21 bln rattling around from TARP to cajole investors to cut struggling homeowner loans. Some may bite. But the new program won’t help enough borrowers to put housing back on track and may not entice Fannie and Freddie to participate.

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The Obama administration announced changes to its Home Affordable Modification Program on Jan. 27, expanding the program to some landlords for the first time and to borrowers whose mortgage payment is a small portion of their income but who have other types of large debt that create hardship.

The Treasury initially expected HAMP, launched almost three years ago, to prevent three million to four million foreclosures. To date, it has ushered through just 750,000 permanent mortgage modifications.

Another component of the plan revisions would provide much larger incentives to investors who cut borrowers’ mortgage balances. Treasury is to triple the amount it is prepared to pay mortgage bondholders, to between 18 and 63 cents on the dollar, in return for their support for principal reductions.

Treasury currently has around $21 billion left to spend on the HAMP program. This funding was allocated as a part of the Troubled Asset Relief Program originally set up in 2008 to bail out the nation’s banks.

The Federal Housing Finance Agency on Jan. 27 also issued a press release reiterating its position that principal forbearance – delaying loan repayment – was nearly as effective as principal forgiveness but much less costly, as detailed by a study it had released earlier in the week.

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