Homeowner Affordability And Stability Plan or HASP

What Is the Homeowner Affordability and Stability Plan (HASP)?

The Homeowner Affordability and Stability Plan (HASP) was a program initiated in 2009 in an attempt to stabilize the U.S. economy during the Great Recession. The Homeowner Affordability and Stability Plan had three parts: refinancing options for stable homeowners, financial aid for seriously delinquent homeowners, and support for Fannie Mae and Freddie Mac. The HASP was designed to benefit several million American families.

Understanding the Homeowner Affordability and Stability Plan

The HASP was a program that intended to prevent the housing values in entire neighborhoods from deteriorating by preventing foreclosures. During the Great Recession, the housing market and the economy suffered greatly. Millions of people lost their jobs and could no longer afford to make their mortgage payments.

The HASP was aimed at helping homeowners remain in their homes and prevent them from losing their homes due to foreclosure. Foreclosure is when the bank seizes a property due to non-payment or default of the mortgage payments.

The Homeowner Affordability and Stability Plan had three key provisions, which are outlined below.

Refinancing Program

The refinancing program was designed to help nearly five million homeowners to refinance their mortgage, meaning it could be rebooked at a lower interest rate since mortgage rates, at that time, were at historically low levels. Typically, families who owe more than 80% of their home's value can't get approved for a mortgage refinancing. The HASP made changes so that responsible homeowners could refinance and get a lower interest rate, which lowered their monthly mortgage payment.

Homeowner Stability Initiative

This initiative put aside $75 billion to be used for helping homeowners who were struggling to afford their mortgage payments because of the Great Recession. These homeowners often couldn't sell their homes because prices had fallen so significantly. As people lost their jobs or had to take lower-paying jobs to get by, they saw their monthly mortgage payments essentially represent 50% of their monthly income. The Homeowner Stability fund was used to help people make their monthly mortgage payments and stay in their homes.

The provision also provided $1.5 billion in aid to renters who were displaced by foreclosures. Loan modifications were also allowed to help homeowners pay what they could and prevent them from losing their homes to foreclosure.

Fannie Mae and Freddie Mac Relief

Fannie Mae and Freddie Mac are federally-backed home mortgage companies that guarantee mortgages so that banks are not at risk of loss when a borrower defaults. This allows banks to lend more money, which greatly increases homeownership. The relief provided by the Treasury Department during the Great Recession was designed to be a backstop for Fannie Mae and Freddie Mac to provide much-needed stability to the housing market.

The Homeowner Affordability and Stability Plan and the Great Recession

The HASP is one of many steps taken by the U.S. government to counteract or limit the effect of a global economic downturn that began in December of 2007. During the Great Recession, millions of people lost their jobs and homes when the housing market started to plummet. Often referred to as the bursting of the housing bubble, the combination of rising home prices, loose lending practices, and an increase in subprime mortgages created an economically unsustainable situation.

A subprime mortgage is a loan for low credit quality customers who would not normally be able to get approved for a traditional mortgage. With the economy and the housing market soaring, subprime lending was booming.

The housing bubble broke in 2007 when numerous foreclosures and defaults crashed the housing market. This greatly depreciated the value of deliberately obscure financial securities that were directly tied to subprime mortgages, including mortgage-backed securities.

Mortgage-backed securities (MBS) are investments that pay investors an interest payment, which is derived from a bundle of home loans. The investments were only as good as the loans that were behind them.

Unfortunately, the loans were not high quality, and when the recession hit the economy, the loans began to default, and the investments lost considerable value. These events caused a ripple effect throughout the entire global financial system, as banks in the U.S. and around the world began to fail or approach the point of failure. The U.S. federal government intervened to mitigate the damage.

The subprime mortgage collapse led to economic stagnation and to many people losing their homes. Americans faced a financial disaster as the value of their homes dropped well below the amount they had borrowed and subprime interest rates spiked. Monthly mortgage payments almost doubled in some parts of the country. In most cases, borrowers were actually better off defaulting on their mortgage loans rather than paying more for a home that had dropped precipitously in value.

Other Federal Actions Taken During the Housing Crisis

Along with 2009’s Homeowner Affordability and Stability Plan, the federal government took several steps to try and secure the U.S. housing market. Another one of these measures was the Foreclosure Prevention Act of 2008. The housing act was designed to help families who were facing foreclosure to keep their homes and stabilize the overall housing market.