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Fed Study Finds Pennsylvania Foreclosure Program More Effective Than HAMP

May 2, 2011

Our Highland foreclosure defense attorneys were interested to see a recent item about a Federal Reserve study comparing a Pennsylvania program favorably with the much larger Home Affordable Modification Program backed by the federal government. The Wall Street Journal's MarketWatch reported April 25 on a recent study from the New York Fed that examined the performance of Pennsylvania's Homeowners Emergency Mortgage Assistance Program. The program, called HEMAP, uses direct loans to troubled borrowers, usually people who are unemployed. That approach is contrasted with HAMP, which provides financial payments to mortgage servicers at several states of the modification process, as incentives to permit loan modifications.

The Pennsylvania program was a response to housing-market problems from the early 1980s, so it has 25 years of data for the Fed to study. In this program, people who are behind on their mortgages due to unemployment or other financial problems not their fault can apply for a bridge loan to make mortgage payments or catch up on payments. In addition to living in Pennsylvania, HEMAP participants must be at least 60 days behind on their mortgages and require no more than $60,000 to make their mortgages current. They also must have a good history of making mortgage payments and reasonable prospects of repaying the loan. Repayments can be sent with participants' regular mortgage payments and can be as low as $25 a month.

The New York Fed found that this was better than HAMP at helping homeowners keep their homes. For hypothetical mortgages of the same size, the economists found that the cost to the government was lower under HEMAP -- in fact, the repayment part of the program makes it self-funding. They also found that 80 percent of HEMAP participants stay in their homes and avoid re-defaulting. They recommended the program as an alternative, and also recommended steps they said could improve the program, such as tighter lending standards. As for why HEMAP seemed to work better, the economists cited the careful screening process for applicants and the greater appropriateness for an unemployment situation.

As Westminster foreclosure defense lawyers, we noticed that lenders are also on board with HEMAP -- something HAMP does not enjoy. We agree that HEMAP sounds like a great solution for people facing medium-term unemployment -- but because it's not right for others, it's not a viable replacement for HAMP. Under HEMAP, borrowers have to pass a credit screening process just like they would for other loans, which means people in some financial situations, including no immediate prospects of re-employment, just wouldn't qualify. In fact, the Fed's recommendation to tighten standards could make that problem worse. California is pursuing a similar program on a smaller scale with Keep Your Home California, the state's use of its federal Hardest Hit Fund money. We hope our residents enjoy the same kind of success Pennsylvania has apparently seen.

At Howard Law PC, we represent Californians who are fighting to save their homes from loan servicers' foreclosure machines. We have practiced in this area of the law throughout the housing crisis, so we've seen firsthand how servicers' policies and apparent lack of competence have frustrated borrowers, drained their savings and led them into foreclosure despite their best efforts. In this time, our Temecula foreclosure defense attorneys have come to believe that lenders don't want to make loan modifications; they pay lip service to loan workouts while actually maximizing the fines and fees they can charge, while "dual-tracking" homeowners toward foreclosure. We fight back by suing lenders for breaking HAMP rules and California law, which allows a judge to suspend the foreclosure sale when necessary.

If you're sick of calling your mortgage servicer for help, only to get the runaround and a series of non-answers, you should call Howard Law instead. For a free, confidential evaluation of your case, send us an email or call 1-800-872-5925.