Average Homeowner In Assistance Program UNDERWATER (Huffington Post)

Shahien Nasiripour
Huffington Post
7/6/10

The average beneficiary of the Obama administration's flagship homeowner-assistance program owes their mortgage lender more than $1.50 for every dollar their home is worth, which means they fall into the stratum of homeowners most likely to simply walk away from their mortgages, recent government data show.

This little-noticed statistic was disclosed in a June 24 report by the Government Accountability Office. Citing government data collected through mid-April, the report found that even homeowners who receive lower monthly payments through the administration's Home Affordable Modification Program are still struggling "under water," meaning they owe more on their mortgages than their homes are worth.

A recent study by Federal Reserve economists shows that underwater homeowners are, not surprisingly, much more likely to default on their mortgages. Moreover, borrowers who are deeply underwater -- like those in HAMP, who average negative 50 percent home equity -- are far more likely to default willingly; that is, to give up on trying to overcome their growing mountains of debt, and just stop paying at all.

This revelation underscores the problems with the path taken by the Treasury Department to help homeowners, who merited federal attention only after the government gifted Wall Street banks with hundreds of billions of taxpayer dollars to survive a financial meltdown largely of their own making. Rather than designing a program exclusively focused on homeowners, the administration chose to set up an initiative that seeks to balance the needs of homeowners with the interests of lenders and investors.

Thus, while the average homeowner in the program is saving more than $500 a month, 28 percent more homeowners have been bounced from the program than have been helped. Homeowners that receive permanent reductions in their monthly mortgage payments end up deeper underwater than they were before they were "helped." Meanwhile, lenders and investors continue to foreclose on properties at a record pace.

On Tuesday two top Republicans released a Thursday letter to Treasury Secretary Timothy Geithner calling for the administration to "immediately" end HAMP.

"It defies common sense that taxpayer money is being used to pay banks to modify loans that are likely to default anyway," said Rep. Darrell Issa (Calif.), the ranking Republican on the House Committee on Oversight and Government Reform. "In cases where loan changes could keep borrowers out of foreclosure, banks have a clear incentive to make changes without a need for public funds." 

They don't necessarily have an incentive to help homeowners, however. Consumer advocates like Diane E. Thompson, a lawyer with the National Consumer Law Center, said part of the reason the average HAMP homeowner is so deeply underwater is that underwater homeowners are more likely to get a loan modification approved than less-desperate borrowers with positive equity in their homes.

That's because of the test that mortgage servicers run to determine whether homeowners qualify for the program. Called the "net present value" test, it essentially tells lenders and investors whether they'll make more money foreclosing on the home or modifying the borrower's mortgage. This profit motive determines whether distressed borrowers will keep their homes or be kicked to the curb.

The test "favors homeowners who are underwater," Thompson said. "The less equity you have in the house, the more likely you'll pass the NPV test."

"One of the real failures of HAMP" is its inability to help the "little old lady who's lived in her house for 30 years," Thompson added.
 Link to yet another failed government program

Unbelievable levels of debt placed on the backs

of our grandchldren for WHAT REASON?