Monday, January 18, 2010


The HAMP program has mostly been a failure, and people are just walking away.

Desperate homeowners scrambling to get a loan modification through federal foreclosure relief programs are beginning to shun the offer, opting for a strictly business approach to the dilemma — walking away.

Because the majority of modifications don't reduce the principal payment on loans made during the overpriced boom years, underwater mortgages could still be drowning 10 years out.

The better option for those borrowers, some say, is to take the hit now and attempt a short sale, deed in lieu, or even allow their home to go into foreclosure.

I've talked to quite a few people about just why it hasn't made sense for the various stakeholders to be more open to principal modification. I really don't think anyone quite has the definitive answer. Roughly it seems that the incentives for the various people/institutions involved are just completely screwed up. Investors don't want to have to revalue their portfolios, servicers benefit from extending the process because of fees they can charge, etc.

There was never going to be a perfect program, but bankruptcy cramdown was always the best hope to achieve sensible principal modification through an established process.

By the way, the foreclosure crisis? Not even close to being over.