David Dayen at FireDogLake is doing a great job with a series Portrait of HAMP Failure (Four Parts so far, Part One, Two, Three, Four.)
The key is in the title of the first post: “It Makes Your Financial Situation Worse.” The power asymmetry between the banks and the borrowers is the most obvious problem. The borrowers should have disproportionately more power, as they are the ones who can walk or stop paying. The shame that comes from this is overwhelming, but it doesn’t have to be that way at all. What you are seeing in the aggregate isn’t speculators or hustlers but ordinary people who bought at the wrong time. That happens all the time, but the idea that the growth of a family should be collapsed for a decade, that the dynamic labor market needs to have bodies through on the gears as people can’t move or short sell to pursue new jobs and opportunities, that ownership looks indistinguishable from debtor’s prison is not only devastating for communities but also the macroeconomy.
These foreclosures are described as lose-lose-lose, as it is a loss for the borrower who can often pay some profitable amount to stay in the home, a loss for the creditor who gets a recovery value of half to two thirds the normal value of the house, and a loss for the community as foreclosures drag down their neighbor’s values. In this situation, after a credit bubble, it’s an additional loss (four losses!) for the macroeconomy, as people can’t move to pursue new opportunities, prices are held at inflated rates by bondholders and servicer to keep balance sheets high and the excess leverage drag the economy to a standstill.
At the breakout panel for mortgage securitization at the GSE Reform panel last week several random investors brought up, almost by random, how the second-liens were the reason all these mortgage modifications were failing. I’ve heard that from so many people that this specific target strikes me as the obvious point of investigation. However that would require our government to get serious about the balance sheets of the four largest banks. Think that will happen anytime soon?
I encourage you and people you know to contact Dayen about your stories with HAMP (Housing Affordable Modification Program). There are a lot of financial people who read this blog, so if you are a servicer on the other end of these situations Dayen would certainly listen to your story and keep your anonymity if required when writing your point-of-view.
