Short Sale and Foreclosure – FDIC backs HAMP
The Home Affordable Modification Program (HAMP) has come under fire recently for what observers call its "total failure" to attain its goals. Federal Deposit Insurance Corporation (FDIC) chairman Sheila Bair begs to differ though. She has gone as far as to call the program the "most ambitious mortgage modification effort ever undertaken". In the face of the shocking incidence of short sale and foreclosure cases swamping the real estate market those are pretty strong words.
Bair pointed to the general downturn in the number of new foreclosure case in the latter half of 2009 as an indicator the market had started to seriously consider alternative measures that would keep borrowers in their homes while minimizing the fallout for themselves.
This tends to ring true as more and more major lenders appear to be willing to institute their own programs to assist the embattled homeowner communities that make use of their services. She has also indicated that regulators and the government need to take note of the way the mortgage problem is evolving and adjust their policies accordingly if progress is to be made.
Bair has indicated that the FDIC is accessing their loss share agreement write-downs as a potential aid to keeping homeowners in their homes and enhancing the overall value of their loans. She added that this would also save the lenders the killing costs of foreclosures which would also have numerous positive spin-offs for the industry as a whole.
She has made it clear that none of these measures can be considered to be blanket solutions and that mortgages with loan to value (LTV) relationships of 150% or more would, in all likelihood, be lost. Bair believes that a reduction of LTV ratios to around 100% would greatly reduce the default frequency.
That in itself is a hard target to get close to, and Bair has conceded that the FDIC’s studies in this regard are a work in progress. The upside is that the work is progressing, both on a legislative and grass roots level. As long as policy makers and industry players can stay on the same page and work towards long term equitable solutions the short sale and foreclosure monster may yet be slain.
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