The Wall Street Journal published an insightful op-ed piece by Edward Pinto. Mr Pinto sees two major shortfalls with the Treasury’s attempt to modify delinquent mortgages through the Home Affordable Modification Program (HAMP).
- “The first shortfall is that the program doesn’t provide a clear process to triage the over 7.5 million delinquent loans.”
- “It doesn’t take into account that the primary reason borrowers default is “negative equity.” When a house is worth less than what is owed on it, making monthly payments seems like a waste of money and many homeowners walk away.”
Mr. Pinto categorizes the three types of delinquent borrowers in his article:
- Borrowers with loans for vacation homes or investors. Pinto feels these loans should be identified immediately and, “when necessary, foreclosed on.” ‘Scammers’ also fall into this category.
- Borrowers who can’t or won’t pay their mortgage. Mr. Pinto feels these borrowers should be given incentives to vacate their homes, “either a small amount of cash or the ability to conduct a short sale.”
- Borrowers who have demonstrated an ability and willingness to pay their mortgage. Mr. Pinto writes that these borrowers can be best served “if we stop clogging the system with unqualified borrowers from groups one and two.”
(If you fall into category three, still call your lender for a loan modification using HAMP. With government pressure now on the industry to act quickly, you may find your lender to be more cooperative than in the past. If you fall into category two, contact your lender to request a short sale or deed-in-lieu of foreclosure.)
In October 2008, along with Peter Wallison, Edward Pinto wrote in the Wall Street Journal that government agencies bore a responsibility to “clean up the mess they had made by lowering underwriting standards to satisfy Congress’s desire to increase home ownership.” They suggested “that the loan principal could be reduced by an average of 20% to give owners equity—and with it an incentive to pay their mortgages.” They also suggested that mortgages “be modified to a 5% fixed rate loan with a 20-year term.”
DHW highly recommends that you read this article (this includes you too, Treasury).
DHW asks: Have you applied for a loan modification or short sale? If so, how was your experience?