The Market is “HAMP”ered

Inventories are down 65% from one year ago. Agents working buyers are frustrated with 8-10 or 12 offers on every listing that is “priced to sell.” What’s happening here?

The answer is the “Home Affordable Modification Program” (HAMP). It’s Obama’s financial stability plan. It was released back in March of this year. The program is designed to reduce mortgage payments for up to 3-4 million homeowners.

Check this out. The program will lower the interest rates to as low as 2%, extend the amortization period to 40 years. Perhaps most importantly, a Forbearing of a Portion of Principal, interest free, until such time the payment reaches a 31% debt to income ratio for the Borrower. The program requires participation on loans owned or insured by Fannie Mae and Freddie Mac. Through August 2009, over 360,000 trial loan modifications have been started.

Under this program, loan servicers are paid to participate and so are the investors that hold the mortgage. One of the key features of the Program is a 3 month trial period, during which, foreclosures are postponed to see whether or not the homeowner makes the new, reduced payment as agreed.

The result is a large increase in the number of foreclosure sales that are and have been postponed. You could say they have “HAMP”ered the marketplace. Many agents are not aware that a foreclosure sale can be postponed for up to one year without re-filing the Notice of Default.

If the program works, foreclosures will begin to cancel in HUGE numbers. If the program fails, foreclosure sales should increase. Neither has happened as of yet, but we should see some results before long.

This program has created a much diminished inventory of homes for sale. With inventories this low, as low as 1 ½ months supply, we would see an increase in sale prices. But I wouldn’t look for that to happen soon. The new appraisal rules will temper the amount or speed of increase in values.

Short Sales will result in this approach in 2010. Even if you accept all of the breaks offered in the loan modification program, the facts are, at some point, you are going to want to get out from under this mortgage. The payment may be manageable, but the idea of even paying the modified mortgage off before you need to relocate is doubtful.

The ultimate answer is a Short Sale at some point in the future.

In the mean time, we will just have to deal with the “HAMP”ered Real Estate Market.