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July 13th, 2009

Stop Me If You Have Heard This One Before

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Which one? You know, the one where a government program is announced and with it comes an astronomical number of the amount of people it could help.

National Mortgage News reports that research conducted at Amherst Securities Group (ASG) reveals that the July 1 expansion of the Home Affordable Refinance program could help as many as 2.25 million borrowers reduce their mortgage payments. The administration claimed that under the program’s original structure — in which only borrowers who had a loan to value of between 80-105% could participate — over 4 million homeowners were expected to benefit. Does this mean that, with the expansion, ASG expects the program to impact over 6 million homeowners?

On Friday the Washington Post reported that Federal officials “scolded” many of the nation’s largest lending institutions, pressing them for increased participation in the Making Home Affordable program. The program’s success rate is far below what administration officials had predicted:

So far, more than 270,000 homeowners have been offered modifications, but it is unclear how many mortgages have been adjusted. Lenders have been overwhelmed by requests for help as rising unemployment rates cause more borrowers to fall behind on their payments. The administration had aimed for the program to help up to 4 million struggling borrowers.

Don’t be impressed the next time a large number is attached to a foreclosure relief strategy. Remember that the number of people it can help is usually far from the number of people it will help.

Why?

According to Servicing Management Magazine, there are several root causes of foreclosure that the president’s MHA program doesn’t address. “On the other hand, some of the leading causes of foreclosure are not ones that will be ameliorated by the Obama plan (at least not enough to change the ultimate outcome). According to research performed at Countrywide in 2007, some of the most common reasons for foreclosure are reduced income, illness or other medical expenses, and divorce.”

“A recent paper from the Federal Reserve Bank of Boston found a direct correlation between an increase in unemployment rates and an increase in mortgage default rates. The authors estimated that for every 1% increase in unemployment, the probability of a 90-day delinquency increased by 10% to 20%.”

Will Making Home Affordable ever be able to help the amount of homeowners they have set out to?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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