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Although the federal Home Affordable Modification Program (HAMP) slowed down the number of delinquent loans going into foreclosure in 2009, one-fourth of homeowners who received trial loan modifications through the program have been unable to keep up with the reduced payments. In addition, only a small percentage of loans were permanently modified. With the rate of foreclosures continuing to rise and unemployment still high, analysts believe that 2010 could bring more delinquent loans resulting in foreclosure. For more on this, see the following article from Money Morning.

housing market trouble
Despite a concerted effort by the Obama administration to rebuild the housing market, it continues to languish. The government's Home Affordable Modification Program (HAMP) failed to stymie foreclosures last year, and 2010 may not be any better.

Instead of declining, the number of foreclosed homes in the United States last year increased to a record 2.8 million, a 21% rise over 2008 and 120% over 2007, according to RealtyTrac. Foreclosures in the fourth quarter jumped 18% over the same period last year.

Not helping matters is HAMP, which was designed as an incentive for banks to restructure mortgage payments for homeowners facing foreclosures. The Obama administration set aside $75 billion to subsidize lenders that successfully modify troubled loans by reducing interest rates, extending loan repayments, deferring principle payments for as long as five years and adjusting other mortgage terms.

Over 900,000 homeowners have started trial modifications and over 1 million offers for trial modifications have been extended to borrowers, according to the government.

However, about 25% of homeowners who received trial loan modifications through the plan are failing to keep up with their new reduced payments, and at least 196,000 borrowers have missed some or all of their required payments, according to comments Treasury officials made on a conference call today and calculations from government data, Bloomberg reported.

HAMP, which was designed to help as many as 4 million Americans had successfully modified just 66,465 loans.

"None of these programs have really been a success," Vivek Sriram, a mortgage strategist for RBC Capital Markets Corp. told Bloomberg. "With the high unemployment rate, it's tough to solve the problem because these people will redefault even if their loan terms are fixed."

The U.S. has shed 7.2 million jobs since the recession began more than two years ago and the national unemployment rate stagnated at 10% in December. Still, 2010 could be even worse.

"As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans," said James Saccacio, chief executive officer of RealtyTrac. "In the long term, a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond, as lenders gradually work their way through the backlog."

This article has been republished from Money Morning. You can also view this article at
Money Morning, an investment news and analysis site.