Five years after the federal government rescued more than 1 million distressed homeowners, many who received aid could still wind up in foreclosure.
To date, nearly 30 percent of borrowers who qualified for relief have defaulted again; and about 800,000 who remain enrolled in the government's flagship assistance program will see their mortgage rates gradually increase starting this year. The median monthly increase would be about $200, but borrowers in some states will pay more -- as much as $1,724 more for some Californians, for instance. As that happens, consumer advocates and regulators worry that homeowners will not be able to keep up their mortgage payments. Greg McBride, a senior financial analyst at Bankrate.com, states, "The program was a temporary Band-Aid. Five years later, that Band-Aid is going to be ripped off."
The initiative, based on the flawed assumption that the economy would rebound faster, lowered the monthly mortgage payments of qualified borrowers for five years -- presumably long enough for them to get back on track financially. However, since the 2009 launch of the Home Affordable Modification Program, the average household income has remained flat for all but the top earners. Today, many borrowers continue to owe more on their home loans than the underlying property is worth, making it difficult to either sell or refinance their way out of trouble.
Obama administration officials defend HAMP but remained ready to respond if there is a significant uptick in delinquencies among the homeowners. "Right now, we're not seeing a lot of data saying that people whose loans have reset are more likely to default after having been current for five years," says Timothy Bowler, acting assistant secretary for financial stability at the Treasury, which administers HAMP. "This is an issue we are monitoring closely, and we are determined to stay ahead of the curve."