It’s Not Pork, It’s HAM.

The government unveiled the Home Affordable Modification (HAM) program today, and the provisions are interesting, exciting, and devastating, depending on who you are.

First the interesting part.  If you are:

1. Anyone with an FHA or VA loan
2. Anyone that doesn’t own a home
3. Anyone that has a mortgage greater than $729,750 (don’t ask me, I didn’t make it up)
4. Anyone that got a new mortgage this year
5. Anyone that cannot verify his income
6. Anyone that is not willing to claim “financial hardship”, meaning some sort of negative change to employment, income, or loan terms over the past year or so
then the terms of the HAM program are interesting, because you don’t qualify for a mortgage modification under this program, and that means that the benefit you get from this is that your tax dollars are going to be used to pay other people’s mortgages for the next seven or eight years.
If you are not any of the people described above, then you at least have a shot.  Your lender MUST consider your application if you ask them to (though they can eventually reject it).  Your HAM comes in the following flavor:
1. Your interest rate will be modified by your lender until your mortgage payment is 31% of your gross monthly income, or just above that.  By “payment”, they mean principal, interest, taxes, insurance, and HOA or condo fees.  The rate may be reduced as low as 2%, but no lower.
2. There are no costs to you of any kind.
3. The interest rate will remain at the reduced level for 5 years, at which point it will rise, 1% per year, until it hits the rate cap.  The rate cap is the market interest rate at the time of modification – today it would be 5.25%.  Your rate will remain at that level until the note is due or the loan paid off.
Sound exciting?  Thought it would.  Here are the things that don’t matter:
You have a bad credit score
You are currently delinquent
You are currently in foreclosure
You are currently bankrupt
You are upside down in your house (owe more than it is worth)
None of these things will disqualify you.  The lender is going to verify your income, and they are going to try to prove that you are not a danger to default, so they can deny you.  It is not in the lender’s interest to modify your loan, so be prepared for skepticism and the third degree.  But if you qualify, the lender MUST grant the modification.
Now for the devastating part.
If you are hoping this will help the economy, you’re delusional.  Yes, it will probably stem the tide of foreclosures, at least a good chunk of them.  But the damage to servicing banks will be beyond anything yet imagined, and all of them – ALL OF THEM – will have to be nationalized.  Essentially, the federal government will be the only lending entity in the US.
Don’t believe me?  Think I’m exagerrating?  Check this out: the government estimates that seven to nine million homeowners will benefit from this program.  Ha.  The problem with the government in general and THIS government specifically is that they don’t understand how markets work.  People are going to move Heaven and Earth to get a slice of this HAM.  A fixed rate for 5 years as low as 2%?  I know good, decent people that would commit felonies for that.
But they don’t have to.  Not by a long shot.  All they have to do is get in financial trouble.  Do I have to describe to you the myriad ways that is possible?  Come with me as I describe just one: furloughs.  As an employer, I have two employees that might qualify for this program.  As a small business owner perpetually strapped for cash, I can always use to reduce my expenses.  All I have to do is furlough my people and PRESTO! they’re going to qualify.  The business reduces its overhead, the employees get a large, government-mandated interest reduction, and everyone is happy except Countrywide and Wells Fargo, who have mortgages currently at 6.5% that will now be at 3%.  I hire the people back, and away we go.  It’s so simple it makes stealing candy from a toddler look like a manned mission to Mars.
That’s one idea.  It took me and my staff exactly seven minutes to come up with it, and we are not excessively bright, either.  There are some really smart people out there, and I can’t wait to see what they come up with.  They have time – the program continues for another three and a half years.
Did you miss the part where this is devastating?  Let me explain.  Banks currently have on their balance sheets loans at certain interest rates.  Now, the bad loans everyone knows about, but the good ones are the things that keep the bad ones from destroying the entire enterprise.  HAM takes those loans and makes them all spectacularly risky.  No bank will be able to count on those 6%, 30-year notes to non-delinquent borrowers remaining on their balance sheets.  At any time they might be forced to modify them to much lower rates.  They can’t be securitized well under those circumstances.  Banks can’t back lending with assets they can’t estimate the value of.  Around and around we go.  Let’s stick it to the banks, we say, then we wonder why nobody can get a mortgage loan anymore.  These are businesses, and they exist only so long as they can make money.  When they can’t, what used to happen was that they went bankrupt and a competitor bought them.  Now what happens is that the government takes them over.  I confidently predict that almost every servicing bank in the US will have that happen in the next 18 months because of this program.
It’s also devastating for the mortgage lending industry, of which I am a tiny part.  At one blow, more than half of my potential lending pool was destroyed by HAM.  All of my conventional borrowers, with the exception of those that have so much income that a 31% DTI wouldn’t help them, are no longer candidates for refinances.  I spent 10 years building a database large enough to sustain my business, and now, essentially, I have to build the entire thing all over again with FHA borrowers and purchasers.  It is vanishingly unlikely that I will be able to do so in this kind of market.  The one saving grace of my business this last year and a half has been low interest rates.  Well, they’re still low.  But they’re not THAT low.  How can I compete with the Audacity of Hope?
So there you have it, folks.  The Home Affordable Mortgage program.  If I didn’t already know, I’d wonder if pork and ham came from the same animal.

30 Responses to “It’s Not Pork, It’s HAM.”

  • credit rate says:

    Hey, great blog!. How do I subscribe to ensure I get notifed when you make new posts? Thanks

  • Hello Can anyone recommend a good loan modification lawyer? Or do you think I should try this alone. If so, can you recommend a good series so I will know what not to do?

  • You made some decent factors there. I appeared on the internet for the difficulty and found most people will associate with together with your website.

  • Max Green says:

    I own a home in tennessee and need some help. My situation is kind of different and I dont know what to do. I was layed off from my job in November 2010. I own a home in Collierville, tn and had to move to Nashville to find work. I am only 1 month behind on my paymments however I am renting in nashville now. I was able to rent my home in cville but it is for much less than what my actually mortagage is. I only bought the home 4 years ago and there is no way i can sell it. Any advice or progams out there that can help me. I am working now but I make about 38% less than what I was making.


    Max Green

  • magnificent submit, very informative. I wonder why the other experts of this sector do not realize this. You should continue your writing. I am confident, you’ve a great readers’ base already!

  • website says:

    How come you do not have your site viewable in wap format? cant see anything in my phone.

  • I adore your wordpress template, wherever do you get a hold of it from?

  • One more thing. I believe that there are many travel insurance websites of reliable companies that allow you enter holiday details and obtain you the prices. You can also purchase the international travel cover policy on internet by using your own credit card. All you should do would be to enter the travel details and you can start to see the plans side-by-side. Only find the package that suits your allowance and needs and after that use your bank credit card to buy the item. Travel insurance on the internet is a good way to check for a respected company with regard to international travel insurance. Thanks for revealing your ideas.

  • I really like it when people get together and share thoughts. Great website, stick with it!

  • Jamie Cole says:

    This is a message to the site owner. I just came to your website (which is great by the way), and wanted to let you know that it’s loading very slowly. I thought it was my internet connection at first but then I realized it was your site. Just as a heads up, I’ve been using FusionHost for WordPress hosting. They have really fast servers which are optimized for WordPress. They also have Softaculous, which allows you to install WordPress with just a single click of the mouse which I thought you’d appreciate :) Hope that helps!

  • Geoffrey says:

    Thanks a bunch for sharing this with all people you really recognise what you’re
    speaking about! Bookmarked. Please also visit my site =).
    We could have a hyperlink alternate agreement between us

  • I am now not certain tthe place you’re getting your information, however god topic.I needs to spend a
    while fnding out more or understanding more. Thank you for great information I used to be llooking ffor this information for my

  • yeezy says:

    I precisely had to thank you so much again. I am not sure the things that I would’ve created without the advice discussed by you regarding such topic. It was actually the daunting setting in my opinion, nevertheless viewing a well-written avenue you resolved that made me to jump with contentment. I’m just happy for this guidance and in addition have high hopes you recognize what a powerful job your are getting into teaching other individuals via your websites. Most likely you’ve never got to know any of us.

  • My husband and i got absolutely fortunate that Ervin managed to carry out his preliminary research while using the ideas he was given from your very own web pages. It’s not at all simplistic to simply possibly be offering tips and tricks many others have been trying to sell. So we remember we have the blog owner to thank because of that. The most important illustrations you made, the easy website menu, the relationships you assist to engender – it is everything amazing, and it is helping our son in addition to our family feel that the matter is fun, and that’s exceptionally essential. Many thanks for the whole lot!

  • I have to show some thanks to the writer just for bailing me out of this scenario. Because of checking through the search engines and coming across basics that were not pleasant, I assumed my life was well over. Existing without the presence of approaches to the issues you have sorted out through your entire short post is a critical case, and ones that would have in a wrong way damaged my entire career if I had not encountered your blog post. Your personal expertise and kindness in touching all the details was useful. I don’t know what I would’ve done if I hadn’t come upon such a thing like this. It’s possible to at this time look forward to my future. Thanks a lot very much for your specialized and effective help. I won’t be reluctant to suggest your web site to anybody who will need guide on this issue.

  • you have brought up a very wonderful details , thanks for the post.

  • Thanks for all your efforts on this blog. My niece really loves engaging in internet research and it is obvious why. My partner and i learn all regarding the lively means you convey informative guides on your web blog and as well as improve contribution from some other people on the theme then our favorite daughter is discovering a great deal. Take pleasure in the rest of the new year. You’re conducting a good job.

  • My spouse and i ended up being now fortunate that Emmanuel could finish off his researching by way of the precious recommendations he came across out of the site. It is now and again perplexing to simply find yourself releasing tricks which often others have been selling. And we also fully understand we have got you to give thanks to because of that. Those explanations you have made, the straightforward blog menu, the friendships you can aid to foster – it’s got mostly excellent, and it’s assisting our son and us imagine that this theme is awesome, which is certainly exceedingly mandatory. Thank you for all the pieces!

  • A lot of thanks for your whole hard work on this web page. Kim loves making time for research and it is obvious why. A lot of people notice all about the dynamic form you offer effective guidelines via the web blog and therefore invigorate participation from other ones about this concern and our favorite daughter is without a doubt learning a lot. Enjoy the remaining portion of the new year. You’re the one carrying out a fantastic job.

  • curry 6 says:

    My spouse and i got really relieved that Chris could finish off his studies through the precious recommendations he made from your very own web page. It’s not at all simplistic just to happen to be giving freely solutions that some other people may have been trying to sell. And we all take into account we have the website owner to thank for this. Those illustrations you made, the simple web site navigation, the relationships you make it possible to foster – it’s got everything overwhelming, and it is assisting our son and us feel that this subject is enjoyable, and that is extremely fundamental. Many thanks for all the pieces!

  • I wish to show appreciation to you for rescuing me from this particular setting. After surfing around throughout the world-wide-web and coming across concepts that were not beneficial, I assumed my entire life was well over. Being alive devoid of the approaches to the issues you have solved by way of this guide is a crucial case, and the kind which may have adversely affected my career if I hadn’t discovered your web page. Your main talents and kindness in taking care of the whole lot was vital. I don’t know what I would’ve done if I had not discovered such a step like this. It’s possible to at this time look ahead to my future. Thanks for your time very much for your high quality and effective guide. I won’t think twice to refer your site to anybody who should receive guidance about this topic.

  • I am only writing to let you know what a magnificent experience our child found going through your site. She noticed a good number of details, including what it is like to possess an amazing coaching mindset to get many others without hassle completely grasp chosen tricky issues. You truly surpassed her expectations. Thanks for showing the good, safe, educational and even fun tips about this topic to Ethel.

  • I would like to show some thanks to you just for bailing me out of this particular dilemma. As a result of checking through the the web and seeing techniques which were not powerful, I thought my entire life was gone. Being alive without the presence of strategies to the issues you have fixed by means of your main site is a crucial case, as well as ones which could have negatively affected my career if I hadn’t noticed your blog post. That natural talent and kindness in handling all the pieces was tremendous. I am not sure what I would have done if I hadn’t come across such a stuff like this. I can at this moment relish my future. Thanks so much for your professional and effective help. I won’t think twice to suggest your site to any individual who would need counselling about this subject.

  • bape hoodie says:

    I not to mention my friends appeared to be following the best things found on your web page and then unexpectedly I got an awful feeling I never expressed respect to the website owner for those techniques. Most of the men are actually consequently stimulated to study all of them and now have surely been taking pleasure in these things. Appreciation for actually being really thoughtful and for picking some wonderful issues most people are really desirous to discover. Our own sincere regret for not expressing gratitude to earlier.

  • I simply wanted to thank you very much yet again. I do not know the things that I would’ve followed in the absence of the actual hints shown by you about this topic. It seemed to be an absolute difficult concern for me personally, but seeing your specialised approach you processed the issue forced me to cry for fulfillment. I’m happy for the work and thus believe you realize what an amazing job you have been accomplishing educating most people with the aid of your site. More than likely you haven’t come across any of us.

  • I must point out my appreciation for your generosity in support of folks who really want help on this study. Your real dedication to passing the message all through turned out to be unbelievably interesting and has always encouraged regular people much like me to attain their objectives. Your amazing insightful help and advice can mean a whole lot to me and further more to my fellow workers. Thanks a lot; from everyone of us.

  • supreme says:

    I wish to voice my gratitude for your kindness supporting persons that require help with this topic. Your real commitment to getting the message up and down has been remarkably valuable and has really enabled workers just like me to reach their desired goals. Your invaluable advice can mean much to me and still more to my colleagues. Best wishes; from everyone of us.

  • I precisely wished to thank you so much once more. I do not know the things I might have used in the absence of the type of information provided by you regarding that area of interest. Entirely was the distressing condition in my view, but considering the specialised style you processed the issue made me to jump for fulfillment. I’m just happier for the advice and then expect you realize what an amazing job you are accomplishing instructing people with the aid of your website. I am certain you’ve never come across any of us.

  • Carola Vidro says:

    great points altogether, you just gained a brand new reader. What would you recommend about your post that you made some days ago? Any positive?

  • I believe this is among the so much vital information for me. And i’m glad reading your article. But wanna remark on few basic issues, The web site style is wonderful, the articles is really nice : D. Just right process, cheers

Leave a Reply