Amherst Securities Group (ASG) analysts reiterated their stance on HAMP 2.0’s implementation. They gave a warning about the potential abuse among borrowers with rental properties.
They said those borrowers owning these assets can wrongfully take advantage of the government initiative because it is structured so that these borrowers are rewarded for applying for modifications during periods when the property is not rented.
HAMP 2.0 is a program that was initially proposed as part of President Obama’s February State of the Union address to support the housing market.
Taking effect on June 1, the program expands eligibility to loans on investor properties and to owner-occupants whose debt-to-income (DTI) ratios were already below 31%. It aims to extend HAMP coverage to owner-occupied borrowers who did not qualify for HAMP 1.0 as well as to those owning properties for rental purposes.
In terms of owner-occupied properties, HAMP 2.0 allows for payment relief down to 25 DTI versus HAMP 1.0’s 31 DTI standard. Although ASG analysts are relieved about having a minimum DTI requirement rather than none at all, they said that this still places the inconvenience of an affordable debt burden primarily on the first-lien mortgage.
Analysts have significant concerns about HAMP 2.0’s more flexible eligibility requirements. “The only reason we are not even more outraged about this program is that the HAMP 2.0 modifications are somewhat less generous than those under HAMP 1.0,” they said.
To minimize potential abuses, ASG analysts argued that the HAMP 2.0 program needs to be strictly monitored. The Special Inspector General for the Troubled Asset Relief Fund (SIGTARP) made recommendations in its April 25 quarterly report to Congress, which ASG analysts “wholeheartedly” support. For instance, the SIGTARP said that the Treasury should require the borrower to prove that the property has been rented and is occupied by the tenant, rather than simply calling for only a certification that the borrower intends to rent the property.
As for the SIGTARP’s suggestion that stated that “the borrower [should be required to] certify under penalty of perjury that none of the occupancy circumstances stated in the [Request for Mortgage Assistance] have changed." ASG analysts believe that this should be taken further by requiring an independent renter, not a dependent, parent or grandparent paying zero rent.
ASG said that a change in program guidelines along the lines of what the SIGTARP proposed is necessary if it becomes evident that the majority of the properties are either vacant or rented at either a zero or sub-market rent at the time that the modification is processed.