The economy is bad, the housing market has crashed, and home values languish at levels way below  their mortgage balances.  People are struggling to make the payments due to job loss.  You would think that mortgage banks like Bank of America and GMAC would be working to keep the boats afloat, as it were, striving to keep the inbound cash flow coming on all the distressed residential real estate mortgages in their portfolios.

        The Obama administration even implemented the Home Affordable Modification Program (HAMP) to give qualifying homeowners "permanent" five-year modifications that drastically reduce their monthly payments if they first complete a three-month trial period.  Simple, right?  Gives lots of people a chance to get back on their feet while continuing to pay the mortgage company.  At the same time, the banks are getting cash flow, while avoiding having foreclosed homes in their inventory that have no chance of selling for the amount owed.  During those five years, hopefully, the market will turn around, and values will rise to exceed the mortgage balances.  Everyone wins.  Well, in reality, not so much, and that may be in the way the HAMP program is structured.

        A recent article in The Huffington Post discusses the failure of this program with many banks.  The article observed that,

"More often than not . . . borrowers put into trials are kicked out of the program. A federal auditor reported last week that HAMP makes some borrowers worse off, and in some cases actually causes the foreclosures it's supposed to prevent. (Treasury denied that HAMP puts borrowers into default, despite numerous accounts that it sometimes does.)"

Part of this problem may be with homeowners not successfully proving their income as part of the application process.  As the article observed,

"The biggest change in the HAMP guidelines so far has been the requirement that as of June applicants must prove their income to qualify for the program, which has resulted in a drastic reduction in the number trial modifications started. According to data released last week by Treasury, there are 466,708 active permanent modifications, compared with more than 700,000 modifications canceled."

On the other hand, Casey Mulligan of the New York Times observed in an article the same day that it may be the bad economics of the HAMP program to begin with that is dooming it to failure.  He states,

"Because of its destructive economics, the modification program was proposing changes that were only marginally beneficial to borrowers and massively costly for banks. Assuming that banks understood this, I predicted that banks would pursue their own interest by randomly and arbitrarily refusing to modify most of their mortgages according to the program formula."

Looks like he may have been right.  I have talked to many people who have expressed frustration with HAMP and the apparent refusal of banks to work with them.  There are very few occasions where the client has been successful in getting the modification; in some cases, it has made things worse, putting them further behind on their payments.  The bottom line is: people need help.  Unfortunately, it doesn't seem to be coming from HAMP.