As we blogged a couple of days ago the number of California Foreclosure filings have dropped but as you read from our Foreclosure Radar post the other day that even though the Obama stability plan may be taking hold, we still may not be finished with the foreclosures.
The Home Affordable Modification Program (HAMP) is a critical piece of President Obama’s Financial Stability Plan first unveiled February 9th, 2009, with details released on March 4, 2009. One of three parts of the Making Home Affordable program, HAMP was designed to reduce mortgage payments for up to 3 to 4 million homeowners. Payments are reduced by first lowering interest payments to as low as 2%; then if necessary, extending amortization periods to 40 years, and finally forbearing principal, interest free, until the payment reaches a 31% debt to income ratio for a borrower. The program also provides incentives to mortgage loan servicers for participating, and requires participation by servicers of loans owned or guaranteed by Fannie Mae and Freddie Mac. Through August 2009, 360,165 trial modifications had been started. For more information, see makinghomeaffordable.gov.
A key feature of the HAMP program is a 3-month trial period, during which foreclosures are postponed to see whether or not the homeowner makes the new, reduced payment as agreed. As a result, the number of scheduled foreclosures that are being postponed at the lenders request or with their agreement has doubled since details of the program were announced. At the end of August 2009 there were 131,300 foreclosures scheduled for sale, compared to 64,177 at the end of February 2009. If the HAMP trials succeed, foreclosures should begin to cancel at record rates, which has yet to happen. If HAMP trials fail, foreclosure sales should increase, which also has yet to happen.