History Repeats Itself
Nearly 1.2 million mortgage modifications have been completed since the Home Affordable Modification Program (HAMP) was first launched four years ago. Yet more than 306,000 borrowers have re-defaulted on their loans and more than 88,000 are at risk of following suit, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) found in its quarterly report to Congress.
In addition, the watchdog found that the longer a homeowner stays in the HAMP modification program, the more likely they are to default. Those who have been in the program since 2009, are re-defaulting at a rate of 46%, the inspector general found.
So to translate: the people who “needed this the most” were the ones who still couldn’t afford to be in the program.
The inspector general said it found some “clear patterns” in its own research. Homeowners who were most likely to re-default were the ones who received the smallest reduction in their loan payments or overall debt, were still underwater on their mortgage or had subprime credit scores and high overall debt at the time the modification took place.
Again, so surprise. If the loan was risky in the first place, then it’s still risky. I feel for people who lose a house… it’s happened in my family and I’ve seen the effects up close. But often it just makes sense to lose the house and move on. This is a program that is probably more focused on “stability” of a family and it’s actually not fixing the bad habits that caused the default in the first place.
I’m very fortunate. The lovely wife and I were talking today about how much we’re on the same page. We’ve recently sold a house in order to get money so we could buy a lot (for cash) and build on it (we hope for cash, but it won’t require much more than we’ve saved). In the mean time, we’re planning to live in a small (paid for) place in order to save money, even if it puts a strain on us in various ways. Somehow I don’t think this is the model of the people who are re-defaulting.
The cost to the taxpayers is in the $800M range and climbing. Wouldn’t $800M have funded some dumb program that people say can’t be cut? I suppose we won’t know, and we’ll all just wonder why taxes are so high.