Humpty Dumpty and the Foreclosure Crisis: Lessons from the Lackluster First Year of the Home Affordable Modification Program (HAMP)

63 Pages Posted: 5 Dec 2009 Last revised: 13 Sep 2010

Jean Braucher

University of Arizona - James E. Rogers College of Law (Deceased)

Date Written: September 9, 2010

Abstract

This Article examines in detail the disappointing first year of the Obama Administration’s foreclosure mitigation effort, the Home Affordable Modification Program (HAMP), including its premises, mechanics, slow start, and ultimately modest results. The Administration committed $75 billion to try to help three to four million struggling homeowners avoid foreclosure and reduce the spillover effects of the foreclosure crisis on the economy as a whole. After a year of operations, ending in March 2010, only about 230,000 borrowers had entered into permanent HAMP modifications, and even these were not necessarily truly permanent. Government agencies predicted a redefault rate of 40% or more because HAMP borrowers were typically left owing more on their homes than their value and with high and difficult to sustain debt burdens overall. HAMP is a compelling illustration that prevention is easier than cure; the challenges of getting relief to millions in a short period of time proved daunting. A partial front-end regulatory fix was adopted, applicable to future subprime home loans, but if policymakers and regulators are ever tempted again to ease up constraints on high-risk financial products such as subprime mortgages, they should remember the cautionary tale of HAMP.

Keywords: foreclosure, mortgage, HAMP, modification, negative equity

JEL Classification: K12, K2

Suggested Citation

Braucher, Jean, Humpty Dumpty and the Foreclosure Crisis: Lessons from the Lackluster First Year of the Home Affordable Modification Program (HAMP) (September 9, 2010). Arizona Law Review, Vol. 52, p. 727, 2010; Arizona Legal Studies Discussion Paper No. 09-37. Available at SSRN: https://ssrn.com/abstract=1518098

Jean Braucher (Contact Author)

University of Arizona - James E. Rogers College of Law (Deceased) ( email )

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