MODULE 58: The Making Home Affordable Program
Core Module Issues:
• What is the Making Home Affordable Program?
• Is it a good part of the solution to the mortgage crisis and recession?
Module Teaching Notes
The government generally tries to fix problems, especially when they impact millions of Americans.
This module looks at an Obama Administration program aimed at helping two specific types of distressed
homeowners.
The program aims to help:
1. “Underwater” loans. About 1 loan in 4 is currently underwater – the borrowers owe more than the current
appraised value of the home. This has come to pass because:
a. Home values have plummeted in many areas, and,
b. Many people took out substantial home equity loans, or signed cash out refinancing, in the years before
the real estate collapse when home values were rising. And by the time of the downturn, they had spend
the cash out equity.
The MHAP helps the owners of underwater mortgages refinance their homes, as long as the loan is not
more than 25% underwater.
2. People unable to make monthly payments.
Banks are given a financial incentive to modify loans, at least on a temporary basis, to make monthly
payments more affordable.
The criticism of this provision of the MHAP is that it is expensive, and that most (over 90% of recipients of
modified payment terms) are still unable to make monthly payments and end up losing their homes to
foreclosure in the end.
The scenario examines the program from a lender’s perspective and asks questions about whether the
government should continue the MHAP and similar programs, and whether banks should participate in it.
Discussion Points for Scenario Questions
1. Should Texas Bank agree to participate in the Making Home Affordable Program at all?
A. YES – BUT MIGHTN’T THEY LOSE EVEN MORE MONEY ON BAD LOANS
THAN THEY GAIN FROM PARTICIPATING IN THE PROGRAM?
2. If Texas Bank does sign up, should its policy be to modify as many loans as possible, or only
those issued to people most likely to be able to make payments over the long term if their loans
are modified?
A. ONLY SOME – BUT SHOULDN’T THEY TRY TO HELP PEOPLE WHO
THEY MAY HAVE KNOWN WOULD BE UNABLE TO REPAY THEIR LOANS
WHEN THE LOANS WERE MADE IN THE FIRST PLACE?
B. ALL OF THEM – BUT WON’T THEIR LOSSES BE HIGHER? WHAT
ABOUT THE BANK’S SHAREHOLDERS?
3. Should borrowers be given prominently displayed statistics that indicate most loan
modifications are unsuccessful in helping borrowers keep their homes over the long term before
they sign any final loan modification paperwork?
A. YES – DO YOU THINK THAT WOULD HELP?
4. Assume that you are a borrower and that you are behind on your mortgage. Assume further
that you are offered a loan modification under the MHAP and that, three months later, still
unable to make your payments, you lose your home. Would you personally feel that you had
“thrown money away in a lost cause,” or would you be glad to at least have had the chance to get
current on your mortgage payments?
A. GLAD FOR THE CHANCE – BUT WOULDN’T YOU BE WORSE OFF, IN
THE END?
5. What do you think of the MHAP overall? Is it a reasonable idea, or is it, as some critics
argue, a poor use of taxpayer money?
A. REASONABLE – WHY?