Another Attempt to Increase Loan Modsby Tim Manni
Nothing comes cheap these days in Washington. In the latest of a multitude of attempts to improve the Federal loan modification program, the Treasury has announced that up to $10 billion in financial incentives will be paid to lenders in an attempt to encourage their participation (emphasis added):
As part of an ongoing effort to expand relief to struggling homeowners, Treasury released today the Supplemental Directive for its Home Price Decline Protection (HPDP) program, a component of the Home Affordable Modification Program (HAMP). HPDP provides additional incentive payments for modifications on properties located in areas where home prices have recently declined. The purpose of the program is to encourage additional lender participation and HAMP modifications in areas with recent price declines by helping to offset any incremental collateral loss on modifications that do not succeed.
With this program, the Treasury is now paying financial incentives to all parties involved in the modification process (borrowers, servicers, and now lenders). If you recall, the notion that Washington was going to pay borrowers to remain current and services for their “success” was extremely controversial. In fact, what started out as the “Chicago Tea Party” quickly branched off into several separate protest groups which denounced upcoming Federal legislations. However, it seems, due to lack of ‘tea party’ coverage lately, that the unrest over President Obama’s housing rescue plan has died down. One guess is that the litany of other massive legislations announced since the HASP has provided ample distraction.
The Home Price Decline Protection Program seeks to help cover any losses incurred by the investor due to a continuing decline in home prices. This is accomplished through a complicated mechanism which could allow the investor to see several thousand dollars in payments over a two-year period.