Virginians, Brace for the End of Making Home Affordable

This is a guest post by Felicia Bolling. Felicia is a Housing Education Specialist at Housing Opportunities Made Equal. She has been a member of HOME’s Foreclosure Prevention Team throughout the housing crisis. Felicia holds a B.S. in Computer Information System from Strayer University and is currently pursuing a Master of Public Administration.

Making Home Affordable (MHA) was created by President Obama’s Administration in March 2009 to help approximately 7-9 million distressed homeowners avoid foreclosure. MHA has several programs to help address the foreclosure crisis. Most significantly it reduces homeowners’ mortgage payments down to 31% of their gross monthly income.  Homeowners were able to benefit from a 37% reduction in their mortgage payments.

This program has had its ups and downs. The MHA Home Affordable Modification Program (HAMP ) was supposed to use $75 billion to help 3-4 million homeowners. Unfortunately, changing rules and a worsening economy did not make the foreclosure challenge easy to tackle for HAMP. A January 2011 report showed that through the end of November 2010, fewer than 550,000 permanent modifications had begun. News outlets declared MHA and HAMP a failure. However, not all the related MHA programs had reported their full use.

Since the birth of the MHA program through August 2011, more than 5.1 million modifications began. Of these 5.1 million, 1.7 million were trial modifications from the HAMP program. As of August 2011, more than 816,000 homeowners were saved from foreclosure by receiving a permanent loan modification through the HAMP program. Each family who received a loan modification saved a median of $525 per month.

The big question is, what will life be like for Virginia’s distressed homeowners when this program ends in December 2012?

Unfortunately, the housing crisis may get worse once the MHA program ends. Homeowners will no longer have the option to put mortgage payments on hold while their foreclosure is in review. In addition, mortgage lenders and/or servicers will revert back to traditional modification guidelines. These guidelines will require large down payments to obtain a loan modification. Mortgage payments could once again rise above 31% of the homeowner’s total gross income, thereby increasing the number of Virginians who are paying a large proportion of their income solely for housing.

No longer will underwater homeowners in Virginia be eligible to refinance mortgages to help build equity.  Lenders and servicers will have fewer incentives to modify as many loans. Other significant MHA policies that helped stabilize the foreclosure crisis were the relocation fee and principal reduction incentive. The relocation fee was about $2500-$3000 given as an incentive to homeowners to relinquish their property by not abandoning the property.  The principal reduction incentive is about $5000 that the homeowner receives if they make their payments on time for five years.

While many will argue that the MHA program was ineffective. The homeowners who benefited from this program in Virginia tell a different story.  This program has helped many in the wake of the housing crisis.  While we look ahead to better days, good public policy would be to extend this program beyond December 2012.  This will give distressed homeowners who have fallen in the trenches, hope that the “America Dream” is not just a dream, but a reality.

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