HAMP Is Pretty Much a Failure

According to The New York Times, the Home Affordable Mortgage Program (HAMP) is pretty much a failure. HAMP is the Treasury plan to get banks to modify mortgages of people who cannot afford their current mortgages and are in danger of being foreclosed upon.

So far only 15% of those eligible have been offered help and only 9% have actually been helped. The biggest mortgage servicers are some of the banks that were major TARP recipients. At Bank of America (BAC - Snapshot Report) only 4% of eligible mortgages have been modified and at Wells Fargo (WFC - Analyst Report) only 6% have been. Citibank (C) - (Snapshot Report) and J.P. Morgan (JPM - Snapshot Report) have done a somewhat better job at 15% and 20%, respectively.

The apparent reason for the very slow progress is that the program was all carrot and no stick. The program offered banks $1000 for each mortgage they modified, and paid part of the difference between the old and new payments. Congress made sure that there would be no consequences for banks dragging their feet when it killed the proposal to let bankruptcy judges modify mortgages on primary residencies (they already have the ability to do so for the mortgage on the beach house or the ski chalet, but not on houses people actually live in year-round).

Thus if you are falling behind on your mortgage, and find the bank is not very receptive to a modification, you can blame the 13 democratic senators (almost all "Blue Dogs") who went along with virtually the entire GOP senate delegation in siding with the banks versus the individual homeowner.

Another reason is the change in the mark-to-market rules, which were a result of FASB caving in to congressional pressure. If a bank modifies a mortgage, it will have to reflect this in their financial statements...but they can extend and pretend that a loan is still good if they don’t.

From the borrower’s perspective, the backlog of pending foreclosures is so large that banks have also been very slow to actually take possession. Thus there have been thousands of cases where people simply stop paying and live rent- and mortgage-free for a year or more. That will certainly free up cash for other uses, and is often the most rational course of action for the homeowner, especially if the bank is not interested in modifying the terms of the mortgage. Of course, the homeowner has to live with the uncertainty of not knowing when the sheriff might show up at the door to evict them.

Comments

[update:]

Thank god this stupid taxpayer rip-off failed.

Aug 06 01:24 PM

[ssg13565:]

And you believe stuff published in the New York Times? Why?

How many times do they have to lie to you to lose your trust?

I am sure that if you tell them, they will be able to exceed that number.

Aug 06 01:44 PM

[DrBenway:]

I believe the article is completely wrong. The loan has to be recognized as non-performing after 90 days past due. So new Fair Value Accounting rule has absolutely nothing to do with this.

I suspect the real reason for the lack of loan modifications that many distressed houses values are very depressed (30% or less of the principal in some parts of FL, CA, and NV). So the foreclosure proceeds for the bank would not cover its processing and carrying cost, which is normally estimated about 30% of the principal (gotta pay property taxes, utility bills, repairs, auction transaction fees, legal fees, etc.). Knowing this, no rational homeowner would want to modify his or her mortgage knowing that the bank will be reluctant to foreclose. The homeowners can live rent free in perpetuity as long as they pay property taxes and utility bills.

So free market works very well and socialism does not despite what Obamas, Krugmans, New York Times, and other card carrying members of the Socialist party would lead you to believe.

Aug 06 01:54 PM

[Dirk:]

So where do you get your news, From Faux?


On Aug 06 01:44 PM ssg13565 wrote:

> And you believe stuff published in the New York Times? Why?
>
> How many times do they have to lie to you to lose your trust?
>
> I am sure that if you tell them, they will be able to exceed that
> number.

Aug 06 04:47 PM

[NeverMind:]

Some other reports suggest that the vast majority (60 to 80%) of folks who have had their mortgages modified end up back in default/foreclosure in less than a year. This observation could be a contributing factor in "why" banks don't bother.
Not only are people living "for free" in their houses, but I've seen a number of cases where a foreclosed/short-sale property was placed on the market, and offers at the asking price from qualified buyers are ignored (sometimes with the property going to auction).
It's a rather interesting mess "out there".

Aug 06 07:15 PM

[User 480710:]

Mr. President why are the banking,and loan company not making loans as you promised they would do for the american people we are all hurting and not getting any help. Time for them to answer to you for not helping us the little people that keep them in business, maybe we should boycott their business. Check www.obamamortgagerelie.../

Sep 02 01:25 AM