Solving the foreclosure crisis is a vital step toward the country’s economic recovery. The sooner America can resolve this crisis, the more rapidly banks will recover financially, home values will begin to rise once more and American citizens will return to work. The purpose of this essay is to provide a viable solution to the foreclosure pandemic. This proposal will benefit the homeowners, taxpayers, businesses, and the financial institutions in America. It will not benefit every household experiencing a financial hardship; however it will enable numerous American families to keep their homes. It will also aid in a more rapid economic recovery for America.
Why the HAMP program is failing
The Chicago Tribune dated December 11, 2009 reported that lending institutions are initially working with the HAMP program by accepting a temporary reduction in monthly payments, but only 38% of the trial modifications have become a permanent modification. The article explained that the lending institutions were bringing payments down drastically. One example I read of a lending institution’s failure to permanently modify the loan was a monthly mortgage payment going from $2,200 a month, down to $686 a month during the trial period of the modification process. After the trial period was over, and the homeowner had made every trial payment on time, she was still denied a permanent modification and was forced into foreclosure.
I believe the HAMP program, despite its wonderful intentions, is failing to reduce the foreclosure rate substantially. This, in my opinion, is due to the reluctance of the lending institutions to lose profits and/or potentially accept a loss on their investment by participating in this program. The HAMP program ultimately creates losses for the lending institutions by substantially decreasing, or eliminating altogether, expected profits from an original mortgage note. I believe the lenders are trying to take losses off their books as quickly as possible to maintain a relationship with their investors. Most financial institutions have a fiduciary responsibility to their investors to remain profitable. The HAMP program is forcing them to go against those responsibilities by substantially decreasing the lending institutions profits. This has a sever effect on the lending institution’s ability to lend money as the investor capital and profits decrease. The decrease of investor funds and profits within the financial institutions is a problem that has taken its toll on our American businesses because the financial resources are not available to continue lending money. This yields a terrible outcome for the American public by retaining weak employment and a slowing economic recovery. I believe this is why so many lenders would rather foreclose upon a property then modify a loan under this current plan.
The HAMP program is also increasing the future tax burdens of Americans. This leads to animosity toward the government and toward...