The HAMP program offers incentives to banks to reduce mortgage principle in those states hardest hit by the mortgage downturn.
In other words, the government wants to soften the effects of the free market and to distort the incentives that penalize people for making bad decisions. They are reducing moral hazard.
Dow Jones reports: Bank of America Corp. (BAC) has begun a process to reduce mortgage balances for customers in Arizona as part of a federal program meant to provide additional aid to the worst-hit states.
The nation’s largest bank by assets said Wednesday it has sent letters to homeowners who may qualify for the Hardest Hit Fund, an initiative President Barack Obama announced last year.
The fund allows certain states, which the Treasury Department deemed the most struggling, to use millions of federal aid in order to ease high unemployment and dismal real-estate markets. The individual states determine their own programs.
Arizona, along with Nevada and California, are among the states that have proposed using federal money to get Bank of America to lower the amount borrowers owe on their mortgages.
Through the Arizona pilot program, Bank of America customers experiencing financial hardship may be eligible to have the amount owed on their mortgage reduced through matching contributions from the state and from participating mortgage investors. The federal money would offset the principal reductions agreed to by the mortgage investors.
Arizona’s proposal to get $125.1 million to fund the program said it would look to help homeowners avoid foreclosure on primary residences.