5 Reasons Not to Apply for a Loan Modification in the Home Affordable Modification Program (HAMP)
The Home Affordable Modification Program (HAMP) rolled out last year currently has over 700,000 people in trial modifications and a little over 30,000 in "permanent" modifications. The program has been plagued with consumer complaints of lost paperwork and denials. Here are some reasons why many consumers are better off skipping this program all together.
1. The "permanent" modification is not so permanent.
Those who are getting "permanent" modifications are actually getting an adjustable loan with a five year period of low interest. This was spelled out in the original program, so it is not very accurate to say that these modifications are permanent. It may be helpful to those who are confident that they can pay the readjusted terms in five years, but those who are applying should be aware that this modification may just delay an eventual foreclosure.
2. Money spent on trial modifications could be used elsewhere.
Many consumers are reporting that they are paying for trial modifications for many months and then face a denial of the modification. In these cases they would have been better off to just save the money while waiting for the bank to foreclose. Currently banks are very slow to foreclose and those who simply default end up saving a good chunk of change.
3. Debt is not reduced.
In many instances, those who go through the modification program end up with more debt than they started with as the banks roll in late fees and payments into the principal. In most cases the debt principal is not reduced and troubled homeowners are left paying for an asset that is worth less than their debt.
4. Credit is not saved.
Some consumers mistakenly believed that their credit will be saved if they enrolled in the modification program, but the truth is that banks are reporting trial modifications to credit bureaus as partial payments and credit scores are lowered nevertheless.
5. The program cannot help the unemployed.
Many people are having trouble paying their mortgages due to unemployment, but HAMP is specifically meant to reduce mortgage payments to 31% of a borrower's pretax income. If a borrower has no income then this program will not help.
The Obama administration is trying to get banks to make the modification process easier for consumers by sending "SWAT teams" to the servicers. It is yet to be seen how the program will fare this year, but so far it simply accomplished the feat of putting 30,000 homeowners into new adjustable rate mortgages with a five year teaser rate. Many of those denied the "permanent" modification unnecessarily drained their bank accounts.
What are your experiences with HAMP?