HAMP May Become Requirement Before Foreclosure

According to a document Bloomberg received outlining the plan, the proposal "prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed." A spokesman for the Treasury department confirmed the document and said it is just one of many ideas under consideration.

About 2.82 million U.S. homeowners lost properties to foreclosure in 2009 and as many as 4.5 million filings are expected in 2010, according to RealtyTrac. A whopping one in four homeowners now owe more than their houses are worth.

So far the Obama administration's foreclosure initiative, which was introduced in February 2009, has helped only 116,297 with permanent modifications and 830,000 with temporary trial repayment plans through January 2010, according to Treasury data.

This new Treasury proposal, if adopted, would require all borrowers who are 60 or more days delinquent on their mortgage to be contacted about participation in HAMP. The plan will require each mortgage company to make a least four attempts by phone and two by certified mail over 30 or more days before going to foreclosure. Under the current Treasury plan, foreclosure proceedings are only halted when a borrower receives a permanent modification plan. Some banks have been dragging their feet on HAMP and this will give them the impetus to start taking more serious action.

In a related development, the White House is also looking for a more effective solution for people who are unemployed. Reuters reported last week that the Mortgage Brokers Association talked with the White House about a plan to help unemployed homeowners.

The MBA wants the Treasury Department to provide special loans to companies that must advance payments to investors during a period of forbearance for the unemployed. This would give unemployed homeowners a chance to hold on to their home while they look for work. The forbearance would initially be for 90 days, but the homeowner could be reevaluated for two more periods. No word yet on the White House's reaction to this program, but the White House has signaled that they know a new program for the unemployed is needed.

We can't hope to see stabilization in the housing marketplace until the number of foreclosures are reduced. Both these options seem worth a try. Stay tuned. As soon as we know what the White House decides, we'll print the rules to any new program to help Americans try to save their homes.