The number of Colorado homeowners who entered the Obama Administration’s flagship program to keep people out of foreclosure fell by 38.6 percent in April from compared with April 2011, according to the latest report released by the government.
The Making Home Affordable report shows 994 homeowners in Colorado entered the first part of the Home Affordable Mortgage Program, better known as HAMP, compared with 1,619 homeowners entering the required active trial part of the program in April 2011. However, the number of people entering the program in April rose by almost 10 percent from the 906 in March
In total, there were 12,090 Colorado homeowners participating in HAMP at the end of compared with 10,083 in April 2011, almost a 20 percent increase. Of those, 11,096 are in the permanent modification portion of the program, 31 percent more than the 8,464 in April 2011.
In Colorado, 130 homeowners entered the permanent modification part of the program in April from March, compared with 242 entering the program from March to April last year.
Nationwide, more than a million homeowners have received a permanent modification through HAMP, far less than the more than two million homeowners the Obama Administration initially hoped would be helped by the program.
Some members of Congress last year unsuccessfully tried to kill the three-year-old HAMP, saying it wasn’t delivering on its promise and was providing false hope to distressed homeowners.
HAMP – $3 billion spent so far
However, because so few are enrolled in the program, only about $3.2 billion has been spent on HAMP, out of a potential $30 billion earmarked for it.
Savings, primarily through interest-rate reductions are substantial. The median reduction in monthly mortgage payments is $535, proving an estimated total savings of$12.7 billion.
Zach Urban, Director of Housing Counseling for Adams County, said HAMP remains an important tool for keeping people in their homes.
“Looking at it from the lender’s and borrower’s perspective, I would say that the expense of going into the program is less than a full foreclosure,” Urban said.
“Even though it is a low number of people entering it on a monthly basis, the benefits can go far beyond those individuals.”
For example, if five or six of those 130 homes that entered the program in April from March are in the same area, “that is enough to make or break a neighborhood.”
Lowering the interest payments for distressed homeowners is important even in this environment, where rates are hovering near historic lows, Urban said.
Distressed homeowners can’t refinance
“These borrowers either are delinquent on mortgage payments or are about to be,” Urban said. “There is no way these homeowners can refinance their existing loans.”
Some homeowners in the permanent modifications also have their loan amounts lowered through the Principal Reduction Alternative feature of HAMP. The median principal reduction nationwide was $68,267.
Urban doesn’t think reducing principal is a moral slippery slope, as some critics contend.
“I see it more of an anchor than a slippery slope,” Urban said. “The value of the property has been reduced by that amount, anyway. It’s gone. It just appears that the lender isn’t getting the money they are owed. It is phantom money.”
The value to the investors in the mortgage, whether it is Fannie Mae or Freddie Mac, pension funds, or some other investor, is already lost by the time a portion of it is reduced by HAMP or other programs, he said.
There are huge societal values to keep people in their homes, he said.
“Whoever technically owns the loans, whether it is Fannie or Freddie or a pension fund, it all comes back to us,” he said. “It is all tied together.”
He said that often lenders that grant a principal reduction require agreements to share any potential profits if the home appreciates and is sold.
“Usually, agreements are required for some kind of profit-sharing to keep them from getting a windfall,” Urban said.
As with reducing interest rates, the goal of reducing the principal is to keep the home out of foreclosure.
“By keeping the homeowner in their homes, the mortgage company will receive hundreds of thousands of dollars in payments and will not spend the six to nine months it would take to sell for a loss after foreclosing,” he said.
Asked if he thought reducing the principal could potentially reduce the so-called shadow – foreclosed homes owned by banks that are not yet on the market – Urban said while the market will be helped by principal reductions when the value of the home is gone anyway, he doesn’t think the threat of a shadow market is as big as some have projected.
The shadow market theory is that banks would rather hold on to foreclosed homes now and sell them for a greater profit down the road.
Urban said he has never gotten the impression from bankers that they are hoarding homes to sell later, hoping they could get a bit more money down the road.
For one thing, there are plenty of investors willing to pay cash for foreclosed homes, Urban noted. He said he doubted any potential incremental increase in value would offset the cost of not selling homes.
“It seems to me if they are holding on to homes, they are tripping over dollars to get pennies,” Urban said. “I haven’t seen any evidence that they are hanging on to homes. To think banks have some grand scheme to keep homes off the market rather than selling them as fast as they can, I think is giving banks too much credit. If they do have homes they aren’t selling, I think it is probably more because the process has become bogged down because of bureaucracy more than anything else.”