There has been a lot of celebrating on Wisconsin Ave. in D.C. and Jones Branch Drive in McLean, VA here lately. The respective headquarters of Fannie Mae and Freddie Mac have reached a milestone - the 2 millionth homeowner served in their foreclosure-preventing modifications (loan mods) in the third quarter of 2011. There has been a lot of backslapping and high fiving in the hallways at the two HQs, as nearly 200,000 homeowners have received loan mods or some other form of reduced monthly payment structure. HAMP (Home Affordable Modification Program) has also been touted at a "crucial lifeline to the American homeowner" who had fallen on hard times. With this program, almost 400,000 people have been converted from trial to permanent loan mods in almost three years.
The Government Sponsored Entities (GSEs) were pleased to report that over 90,000 distressed owners of the American dream took advantage of the HARP (Home Affordable Refinance Program) in the 3rd quarter. This was an increase of 11% percent over 2nd quarter results. In sum, the total number of borrowers who are currently underwater that have benefited from the program now totals over 920,000 people, but has this really been a success?
These statistics sound amazing, and it is for those who have been able to get some form of HAMP or HARP financing during the current mortgage tsunami, but the macro stats are not impressive. There are approximately 45 million mortgages outstanding in the United States right now and over 4 million of them are delinquent. The 2011 US Census revealed to us that the average home price is $273,000, so there are nearly $1.1 trillion in outstanding housing delinquencies. Those figures are truly mind boggling, yet truth telling. HAMP and HARP are doing some good, but they have a long way to go.
By and large, for various reasons, most people won't qualify for these programs. They may earn too much "invisible" income, may have lost their job, owe more than 125% of their homes' market value, or made only a small 3.5% down payment at entry. However, the main reason that people aren't qualifying is because their loans weren't Fannie or Freddie loans in the first place.
If a person purchased a home in the heyday years of the mid-New Millennium, they probably used a stated income, no-doc, no asset (alt-A/sub-prime) program for which Fannie and Freddie would never purchase in the secondary market. There are over $1 trillion of these mortgages outstanding and there is no HAMP or HARP loan mod lifeline for them.
Many self-employed borrowers fume at the neighbor next door with the 4.00% rate while they sit stuck in a 6.00% ARM that adjusts unpredictably so with the blows of the economic winds. For them, the HAMP/HARP stats are just evening fodder to be tossed in the verbal round file. All of us are within two degrees of separation from someone in distress on their home loan. For every person who is able to secure a "mod," there are three who are not successful. It appears as if Congress and the various holders of alt-A and sub-prime mortgage products will need to negotiate a public-private partnership to weigh out the pro/con risk/reward of refinancing the plethora of non-traditional mortgage finance products that are out there and fast.
Some people can afford their American dream "as-is" with the current ARM or high-interest rate product they have, and would never "walk away" even if they are underwater. For them, their home is the dream which is to be protected at all costs, as they have the income real or invisible to make the payment. Unfortunately, by and large, the masses don't have that mentality or financial wherewithall to sustain their payments. For them, a reasonable non HAMP/HARP solution is warranted and needed to avoid a proverbial economic train wreck.
HAMP and HARP are doing their thing for the least of these, in spite of the fact that the initial government claim was that these programs would help over 4,000,000 homeowners to get relief in two years. Three years have gone by, and the campaign is still going on without reaching its goal. How much longer can the non-HAMP American wait? How much longer can the non-HARP American wait? I don't know. Neither Capitol Hill nor Wall Street knows. As stated, I see a public-private partnership as a potential solution, but is there the political will and the inherent profit to draw the right parties to the table? I'm not sure, but I do know that the longer Congress withholds assistance to non HAMP and HARP mortgagors, more homes will ultimately be foreclosed on.
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