ABS market players, according to Bank of America Merrill Lynch analysts, are speculating that the U.S. Treasury Department will soon be coming out with new Home Affordable Modification Program (HAMP) guidance.
The revised rules will be based on the suggestions made by the American Securitization Forum (ASF) early last month. The ASF made suggestions on how to solve some of the issues regarding principal forbearance under HAMP and its treatment as a loss.
BofA Merrill analysts expected at the time that the issue would be resolved and that most parties involved would eventually be treating forbearance as a loss.
They added that this new Treasury guidance would further solidify the HAMP. This would also signal the department's continued focus and dedication to the program specifically and the housing market generally.
Despite this, different parties have been forecasting the HAMP's failure. This is mostly a result of the program not addressing negative equity.
Although BofA Merrill analysts believe that this program will produce much better results compared with previous modification programs as a result of the high affordability targets, negative equity will still be a problem and will continue to weigh on performance.
However, analysts are not ruling further iterations of the modification program that include principal forgiveness. They warned though that it might, "take some time to get there."