How Banks Undermined Federal Foreclosure Assistance

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How Banks Undermined Federal Foreclosure Assistance

How Banks Undermined Federal Foreclosure Assistance

Obama’s 2009 mortgage-modification program would have helped 70% more homeowners if lenders had been better organized.

Stanford Graduate School of Business-

In early 2009, in the depths of the mortgage meltdown, President Barack Obama launched a multi-billion-dollar effort to stem the flood of home foreclosures.

It was called the Home Affordable Modification Program (HAMP), and it aimed to help families keep their homes by offering incentives to banks and loan-servicing companies that modified mortgages of troubled borrowers.

The idea was to correct what economists call a “market failure,” because foreclosures can be a losing proposition for everybody involved. Not only do borrowers end up losing their homes, but a bank’s loss from a foreclosed mortgage can actually be higher than the cost of negotiating more favorable terms with the homeowner. Foreclosures also drag down the value of surrounding properties, creating wider losses by depressing the overall housing market.

[Stanford Graduate School of Business]

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