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What Happens When HAMP Expires at the End of This Year?

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Nearly 10 million Americans lost their homes in the Great Recession. Millions more went through the arduous process of modifying their mortgages, either directly through banks or with the help of federal programs like the Home Affordable Modification Program (HAMP). Still more saw the value of their homes plummet, leaving them underwater and in financial peril.

Many at-risk consumers found themselves in a sea of red tape when trying to take advantage of the very federal programs designed to rescue them and their homes.

But things may be looking up.

Foreclosures have slowed, and the total number of underwater homes has dropped by half, from 11.6 million in 2011 to 4.3 million last year, according to CoreLogic. HAMP expires at the end of the year.

That’s not to say the housing market is out of the water, or that consumers who have trouble paying their mortgages don’t need help navigating the process. Solutions span forbearance and modifications to home-disposition options, and each of these is complicated.

To address the problem, this week the Consumer Financial Protection Bureau issued non-binding guidelines for mortgage services when dealing with at-risk homeowners. (The consumer agency refers to the guidelines as instructions for “Life After HAMP.”)

“We aim to help consumers avoid foreclosures, which upset their personal and financial lives,” CFPB Director Richard Cordray said in a press release. “The modification program was put in place to provide alternatives to foreclosure. Our principles will serve as helpful guardrails for servicers, investors and regulators to consider as we continue to protect consumers who are struggling to pay their mortgages.”

The CFPB believes consumers are on more solid footing today than they were before the recession. New rules, such as stricter “ability-to-repay” requirements, make future mass defaults less likely. However, “there is ample opportunity for consumer harm if loss mitigation programs evolve without incorporating key learnings from the crisis,” the bureau said in its report. To that end, it identified four overriding principals that financial institutions should follow when dealing with at-risk homeowners:

Accessibility: Consumers should easily be able to obtain and use information about loss mitigation options and how to apply for them.

Affordability: Repayment plans and mortgage loan modifications should generally be designed to produce a payment and loan structure that is affordable for consumers.

Sustainability: Loss mitigation options used for home retention should be designed to provide affordability throughout the remaining or extended loan term.

Transparency: Consumers should get clear, concise information about the decisions servicers make.

“Avoiding foreclosure is often in the best interests of both the investor and the consumer,” the CFPB said.

The main goal of the guidelines, the bureau said, is to prevent “avoidable foreclosures.”

In the recession, frustration with HAMP and proprietary lender modification programs was high. Some homeowners saw banks continue foreclosure proceedings even as they were delayed by the modification process. The CFPB banned that practice in 2013, but it shows how frustrating life can be for mortgage holders trying to save their homes. (You can see how a past or ongoing foreclosure may be affecting your credit by viewing two of your credit scores, updated each month, for free on Credit.com.)

“The principles announced today by the Bureau do not establish binding legal requirements but instead are intended to complement ongoing discussions among industry, consumer groups and policymakers,” the report said. “The CFPB believes these principles are flexible enough to apply to an array of approaches, and recognize the interests of consumers, investors and servicers.”

Image: Chris Fertnig

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