There are two government programs that were started this year to help homebuyers and homeowners afford placing a roof over their head. The Home Affordable Modification Program (HAMP) is designed to allow people modify their existing loans to lower their monthly payment to 31% of the homeowners gross income. The First-time Home Buyer Tax Credit is designed to provide the homebuyer a tax credit up to $8,000 for the purchase of their first primary residence. After almost a year, how have these programs worked?

HAMP was originally estimated to handle 25,000 loan modifications a week for four years, totaling 1.3 Million modifications when the program ends. Under this program, participants can work with their mortgage lender to decrease their monthly financial burden by either lowering their interest rate or extending the period of the loan. According to the Treasury Department this month, approximately 500,000 homeowners have participated in this program, coming in slightly under the 25,000 modifications-per-week estimate.

While you do not have to be missing payments on your mortgage(s) or hurting financially to participate, this is the target of the program. Unfortunately, new programs that dramatically alter the way business is done has run into two major problems. For starters, the lenders needed to be trained on how to help their borrowers under this program, and then the government rushed them because the results were not coming in as fast as anticipated. Also, some participants were having their credit reports damaged due to the way these loan modifications were being processed with codes set aside for partial payments – a negative term when FICO reviews your credit history.

The $8,000 tax credit was designed to help stimulate home sales while lowering the financial burden for first time homebuyers. It is current set to expire at the end of November, though Congress is looking at possibly extending it into 2010. Unfortunately, the cost to the government exceeds $8,000 per home sale. For starters, about 1 in 10 of the tax credit applications are deemed fraudulent by the IRS. Additionally, the cost to the government for reviewing and processing the tax credit claims runs approximately $43,000. All of this just to lower a homebuyers monthly mortgage cost by about $20.

Of these two plans, I would choose to keep the HAMP program due to the tangible impact it has on the homeowner. In a down economy, with foreclosures and unemployment at all time highs in recent years, any decrease in financial burdens for struggling families is a welcomed sight. However, I think that a federal program should not be necessary, but rather a proactive service by lenders to keep their income stream going. Home loan modification leads to stability in the housing market because the lender doesn’t have to worry about extended periods of missed payments by the borrowers, nor the hassles of going through the foreclosure process and then turning around to sell a home that they don’t want to be responsible for. Some lenders have already made this a common practice, and I hope the rest of the industry soon follows.

Related articles:
Huliq News – “Fraud alleged in tenth first time home buyer tax credit claims”
Reuters – “Builders Urge Congress to Renew Home Buyer Tax Credit to Create Jobs, Boost Economy”
Washington Examiner – “Ocwen Mortgage – the loan modification champion? Are you kidding?”
Connecticut Plus – “Dodd calls for extension of homebuyer tax credit”
Subprime Blogger – “Government Mortgage Refinance Plan – Obama’s new modification plan working?”
UPI – “Fitch: Slowdown in Mortgage Modifications Won’t Last”
New York Times – “Treasury Hails Milestone in Home Loan Modifications”
Wall Street Journal – “Digging Yourself Out of a Mortgage Mess”

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