Smoke and mirrors from HOPE to HAMP.
In February of 2009 President Obama made a speech in which he promised to help between 7 and 9 million families avoid foreclosure, a promise that if kept might truly have helped stabilize the U.S. housing market. Unfortunately, the promise upon which millions of homeowners have placed their hopes and committed their savings, seems to have been little more than political rhetoric.
To address the housing crisis, the President outlined announced the Homeowner Affordability and Stability Plan, a program which although not described as such, would require billions of dollars, would be impossible to administer, and that, in the end, would benefit banks more than homeowners. The plan included several initiatives under the umbrella of Making Home Affordable, and includes subprograms such as HAMP, the Home Affordable Modification Program, and Hope for Homeowners.
Thus far, as described by the TARP watchdog, the administration’s efforts have been disappointing, and it appears that in some cases, modification programs may have worsened the financial situation for homeowners facing foreclosure. By providing an element of “hope,” HAMP has caused many homeowners to continue making mortgage payments thus draining their financial reserves when such funds could have been used for moving expenses and rent deposits. Hundreds of thousands of homeowners entering the modification program have received nothing more than disappointment and frustration from both their lenders and the government’s promise to help.
How could Treasury, which runs the program, not have known that such programs were doomed from the start? It’s conceivable that they did know, that political posturing was more important than providing meaningful help. And this is not to criticize the party currently in power; politicians and bureaucrats on both sides of the political spectrum have regularly demonstrated their incompetence and inability to successfully address major issues.
And now, more than a year into the program, Treasury’s own records show a total of slightly more than 228,000 permanent modifications, or about 3 percent of the President’s original commitment. The administration has failed to meet its promise to save millions from foreclosure and now seems more interested in placing the blame for its failure with banks and homeowners. In recent testimony before Congress, a Treasury representative complained that servicers “were slow to implement HAMP.” What the official failed to mention, however, was the difficulty and confusion Treasury created for lenders by constantly changing the rules, an issue pointed out by the TARP watchdog that I discussed in a previous POST. However, instead of working to revamp its failed program, Treasury is now changing the metric for determining its performance, by counting the number of loan modifications “offered,” as successes, with little or no concern for the impact upon homeowners or the housing market.
Here are a few important points:
● The original promise to “help between 7 and 9 million families restructure or refinance their mortgages” has been ignored and subsequent press releases have focused upon helping only 3 to 4 million, and even that number seems out of reach.
● Treasury was not ready to implement the program when announced and has confused lenders by constantly changing the rules.
● Treasury’s own estimates forecast as many as 40 percent of those receiving a modification will re-default.
● None of the plans proposed to date have the ability to meet the original goal.
● The modification guidelines allow borrowers to have debt loads that are unsustainable.
● The program fails to adequately address the millions of “underwater” homeowners.
● Almost 300,000 new foreclosure filings are added to the problem every month.
● While HAMP is now averaging about 50,000 loan modifications per month, lenders were averaging twice that amount prior to interference from the government.
So what could be the purpose of committing billions of dollars and valuable resources to a problem that, in reality, government programs cannot solve? Politics, and nothing more. Most of those participating in HAMP will not receive the “rescue” they expected; permanent modifications will be extended to a relative few; and millions of Americans will ultimately lose their homes. Estimates from Treasury now predict as few as 1.5 to 2 million permanent modifications, with that number ultimately reduced by 40 percent due to re-defaults.
HAMP has been nothing more than a cruel hoax designed by politicians and bureaucrats to “kick the can a bit farther down the road.” With this program, however, their actions are likely to do more long-term harm than good, bringing financial ruin to millions of homeowners, and extending the housing and financial crises for years longer than necessary.
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