In order to fill vacant homes, real-estate investors who purchased a rental home during the housing bubble will soon be offered mortgage aid. This is the first time the Home Affordable Modification Program (HAMP) has been extended to include landlords owning a one-to-four unit property which they do not occupy.

Starting in May, SFR landlords may qualify for a maximum of four federally subsidized loan workouts, provided that they rent out (or have plans to rent) each house. Thus, speculators bent on flipping are not included.

The program encourages banks to reduce monthly payments by lowering their interest rates, extending amortization periods and forgiving principal balances.

Previously, mortgage modifications were only available to owners who occupied their SFR principal residences – not to residential landlords. While California homeowners rarely participated in HAMP, extending the program’s assistance to owners of rental SFR property could make HAMP effective and speed recovery in our nearly stagnant housing market.

first tuesday take: HAMP has been a bit of a hoax since day one, a diversionary extend-and-pretend program. Intending to provide loan modifications for millions of homeowners nationwide, the program’s narrow requirements for qualification left the vast majority of homeowners ineligible for its relief, and well beyond the willing involvement of mortgage lenders. California’s underwater homeowners who need HAMP’s help the most cannot qualify as beneficiaries of the program.

If the government is having trouble getting homeowners to participate in HAMP, that is the fault of lenders and their policies, not the homeowners. Lender participation in the program is completely voluntary, with lenders failing to participate as a result. From lenders’ standpoint, why adjust interest rates or reduce principal balances when most troubled homeowners will continue to pay anyway?

The administration can make HAMP available to anyone they want: landlords, owner-occupants, speculators; but without mandated lender participation, HAMP will continue to be a failure.

If the fundamental flaws in HAMP policy do not change (as well as the anti-refinance and anti-cramdown stance of Fannie Mae, Freddie Mac and Congress), increasing the availability of the program is of little use to those in need of the program’s relief. Thus, HAMP’s assistance will remain inaccessible until lender participation is compulsory, and the LTV limitation of125% is eliminated.

Related articles:

HAMP loan modifications remain scarce

More bad news for HAMP

Foreclosures push California vacancies

Re: “A bailout for real estate speculators” from The Washington Post