Get out from under

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The Home Affordable Modification Program (HAMP) has led to permanent loan modifications for 300,000 drowning homeowners as of April, but the program was created to help up to 4 million distressed homeowners (over 4 years).

In an effort to respond to these dismal numbers, the Obama Administration has moved to enhance HAMP. Perhaps as soon as this fall, HAMP will give mortgage servicers and lenders additional incentives to reduce mortgage principal. For every dollar that the lender reduces the principal, it will receive a 10- to 21-cent subsidy.

It’s still not a program that experts in the mortgage industry expect will succeed. The structure for deciding mortgage modification is too restrictive; many mortgage owners are securitization trusts that have limited ability to modify loans; and there is not enough financial incentive, says Jonathan Wishnia, who is a capital markets attorney at Lowenstein Sandler. He says many mortgage holders are better served working outside HAMP.

Banks offer similar programs, sometimes with less stringent qual-ifications, says attorney Shari Olefson of Fowler White Boggs. You’ll have to negotiate terms yourself, and banks are reluctant to write down principal. To persuade your bank to reduce principal, suggest that it forgive part of your loan as an incentive for you to pay it off early. You would sign a note for the full deficiency but receive a reduction in the deficiency owed if you make payments on time for a specified amount of time.