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HAMP fizzles

posted by Alan White

Treasury reported Friday that a hopelessly inadequate 37,000 mortgages were permanently modified as a result of the Administration’s HAMP program in July.   The program, funded by TARP bailout money, offers mortgage servicers incentives and subsidies to modify mortgages, something they were doing before and should be doing far more anyway.  Last month's total translates to fewer than half a million modifications annually, compared with perhaps 3 million new foreclosure starts and 1 to 2 million completed foreclosure sales we can expect in this Year Four of the foreclosure crisis.  The future prospects of the program are dim:  fewer than 25,000 new trial modifications were generated last month, compared to the more than 100,000 monthly at the program's peak in the fall of 2009.

The July report also brings the news that more than 600,000 homeowners had trial modifications but those have now been canceled.  While some were thrown out because of missed payments, the leading cause was apparently missing paperwork (the report omits any statistics on causes of cancellations).  HAMP has been a massive exercise in false hopes for 45% of its participants.  The report notes that most of the homeowners with canceled modifications remain in limbo, either in an "action pending" category or being considered for non-HAMP modifications.  

Investor reports that I tabulate show that monthly modifications of securitized mortgages are still lower in July 2010 than they were in March 2009, before HAMP offered mortgage servicers generous incentive payments to increase their foreclosure prevention activities.  There is no shortage of new homeowners entering default and foreclosure, as tomorrow's second quarter National Delinquency Survey will undoubtedly reveal, and thus plenty of potential mortgages to work out.  It is particularly absurd that half of the permanent modifications subsidized by HAMP are Fannie and Freddie mortgages.  Fannie and Freddie have been effectively nationalized, and there is no reason that the government cannot simply instruct mortgage servicers to do the modifications without throwing TARP money at them.

The foreclosure crisis continues unabated, and the mortgage industry is doing essentially what it was doing before Treasury offered it $50 billion to do its job.  The timid HAMP incentive approach has proven ineffective, even counterproductive.  The good news, I suppose, is that taxpayers will never spend that $50 billion because servicers will never meet their budgeted modification numbers.  The bad news is that the risk of the US economy experiencing a Japan-style lost decade looms larger.  Existing home sales, we learned last week, collapsed after the government's tax credit subsidy expired, and we now have a 12-month inventory of unsold homes.  One third of the cratered home sales consists of foreclosure and short sales.  Home prices have not reached bottom.  Banks continue to extend and pretend, but not lend, not surprisingly, given the huge mortgage losses that remain unrealized. 

The Frank-Dodd financial reform bill tinkers with HAMP, but also offers new foreclosure aid, in the form of bridge loans to unemployed homeowners.  The danger with continuing these approaches is that defaults and foreclosures will remain at historic levels for years while palliative measures become the norm.  Candidate Obama promised bold measures to end the foreclosure crisis, incuding a foreclosure moratorium, and empowering bankruptcy courts to write down homeowners' mortgage principal.  Urgency now seems to have given way to complacency. 

Comments

I keep seeing comments projecting the US to track Japan's experience, but all those comments gloss over two, salient points. First, in spite of the aging Boomers, the US is not looking at anything close to the demographic situation Japan is already in. Second, on the other hand, Japan has not been dismantling its industrial base and underfunding its infrastructure for 40 years. These two points alone indicate to me that the problems are different, and the solutions will have to be different as well.

There has been some talk that indicates HAMP was not designed to help homeowners but specifically designed to help big banks/Servicing arms. The slow bleeding of homeowners to facilitate accounting tricks by Servicers to not have to take losses up front but rather push those losses to some point in the future. All the while taking and being infused with cash via "trial period" payments and then ultimately foreclosing. When instead of saving their money in order to have enough cash to move and rent, they have taken the debtors disposable income, propping them up with hope, then slamming the door on them. By pushing the losses to some distant time frame prevents them from taking losses and allows them to bonus their employees but doing nothing to stabilize the housing market..

Patches, you know that by saying that out loud you open yourself to comments of "tin-foil-hattery" and that you've been marinating in the Gulf waters in the sun for too long... ;)

But then someone like ProPublica comes along and publishes possibly the most significantly piece of damning evidence to date about the industry - http://www.propublica.org/article/banks-self-dealing-super-charged-financial-crisis - and suddenly you are incredibly insightful and wise... ;)~

It's always nice to confirm that, while I really have absolutely no business rubbing cyber-elbows with many of the incredibly talented and intelligent people with whom I communicate, y'all really do "get it" :) Keep up the great work down there, Patches.

Professor White, always a pleasure to read your work. I'd love nothing more than to see you focus specifically on Mortgage Servicing Fraud OUTSIDE of the realm of bankruptcy sometime.

Not sure if I've mentioned it here or not, but I'm watching Fannie be "assigned" non-performing notes, oftentimes through MERS, and then foreclosing on them within 30 days. Many times, the assignment is recorded the same day that the FC auction begins to be advertised. Given Fannie's "nationalized" status, why is it that Fannie is going forward with foreclosures, at least in New Hampshire, without having any legal standing to do so? Can Fannie be taking advantage of the same "note insurance" policies that the rest of the Wall St. RMBS world is? I've also noticed this with Ginnie Mae as well...

;) It's so hot down here and it's been flat...:( Good fishing though.

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