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Digital News Report – The government loan modification program has come under fire from Republican lawmakers over the last month. The Making Home Affordable Program was designed in 2009 to slow the decline in home prices by preventing foreclosures.
The program has helped approximately 600,000 homeowners, far less than the millions the program was supposed to help. The most abhorred part of the program is the Home Affordable Modification Program (HAMP). The government gives banks and servicers incentives to modify the loans.
The Congressional Budget Office now says that the taxpayer could save $1.4 billion if the foreclosure prevention program was eliminated. There would also be about 100,000 more foreclosures driving home values even lower.
Republicans in the House of Representatives can pass a bill to eliminate the program, but the Democrat-controlled Senate will kill the bill.
Despite the incentives offered to servicers to modify the loan, it isn’t enough. Although banks don’t actually own the loan, they typically act as a servicer for investors. Bank of America, Chase, Citibank and Wells Fargo collect the payments, take a fee and pay the investors who own the loan.
When homeowners have trouble making their payments, the banks will begin a foreclosure process. They may temporarily modify the loan, but after the temporary period they may still foreclose, even if all of the payments are made. Why? It is more profitable for the servicer to file the foreclosure paperwork than to modify the loan and continue to collect payments.
There is a proposal to pay the servicers more. This would provide an added incentive to modify the loans.
The Congressional Budget Office also made other proposals to help eliminate the deficit, including increasing income taxes and cutting the mortgage interest deduction. Their report also raises questions about the capital gains tax rate.
The CBO says that reducing the limits made to retirement plans would also help reduce the debt. Although a tax on social security income is not a popular method of reducing the deficit, the CBO raised that option as well.
By Tina Brown