The Home Affordable Modification Program ("HAMP") emerged from Treasury's initial promise that Troubled Asset Relief Program would be used to bail out homeowners on Main Street as well as the megabanks on Wall Street. As originally sold to Congress, TARP funds would be used to purchase "troubled assets" -- the mortgages and mortgage-backed securities whose plummeting value helped trigger the financial crisis. Treasury promised that once it purchased those mortgages, it would then modify them where appropriate, potentially helping millions of struggling homeowners keep their homes. It was this promise, of course, that helped deliver many of the votes from Congress that ultimately authorized TARP.
After Treasury shifted the focus of TARP from the direct purchase of mortgage-related assets to capital injections into the struggling Wall Street behemoths, President Obama announced the mortgage modification program in February 2009 to address the government's still-unfulfilled promise to assist struggling homeowners. As announced, HAMP was intended to help 3 to 4 million homeowners stay in their homes through permanent government-subsidized mortgage modifications. By any meaningful definition, that effort has been a failure.
When I stepped down as the Special Inspector General for the Troubled Asset Relief Program ("SIGTARP") at the end of March, I warned that HAMP was falling far short of its stated goals and even further short of meeting the urgent needs of American homeowners. Unfortunately, there has been little improvement since then. The foreclosure crisis continues to wreak havoc on millions of American homeowners. While the number of foreclosure filings has "dropped" in the first half of 2011 to a still-devastating 1.2 million properties (compared to 1.6 million properties in the first half of 2010, and a record-setting 2.9 million for all of 2010), this improvement is illusory.
RealtyTrac notes that the drop-off in foreclosure filings is not due to improvements in the housing market, but rather to processing and procedural delays arising out of the robo-signing scandal. In yet another example of the foreclosure can being kicked down the road, the firm estimates that these delays will merely push as many as 1 million foreclosure actions from 2011 to 2012 or later, adding to the uncertainty in the market. Indeed, there are already gathering signs that the foreclosure machine is once again being restarted, with first-time default notices being sent to 78,000 homes in August, a 33% increase over the previous month. Meanwhile, RealtyTrac's data reveal that bank repossessions continue even in the aftermath of the scandal: more than 400,000 homes were taken back in the first half of the year. And compounding the ill effects, as the Wall Street Journal recently reported, banks are increasingly seeking deficiency judgments against foreclosed-upon borrowers, potentially driving them into bankruptcy.
In contrast, the number of permanent mortgage modifications under HAMP remains feeble. There were just 675,000 ongoing permanent modifications as of July 2011. As of the last time that the data was made public, less than 46% of HAMP modifications were actually funded by TARP, with the remainder executed by the Government Sponsored Entities ("GSEs"). In contrast, a combined total of just less than 880,000 trial and permanent modifications had been cancelled, with more than 106,000 trial modifications still in limbo. Obviously, HAMP's permanent modification numbers pale in comparison not only to foreclosure filings and failed HAMP modifications, but also to the initial prediction that the program would "help up to 3 to 4 million at-risk homeowners avoid foreclosure" "by reducing monthly payments to sustainable levels."
Rather than 3 to 4 million promised mortgage modifications, HAMP's output looks on pace to meet the Congressional Oversight Panel ("COP")'s December 2010 projection of just 700,000 to 800,000 effective permanent modifications through the lifetime of the program, a small fraction of the original goal. Nor is there any reason to suspect that HAMP will see any significant improvement, with only a net increase of about 23,000 permanent modifications per month over the most recent quarter. This is a far cry from the 20 to 25,000 trial modifications per week that Treasury officials once predicted. Worse, these figures mirror a slowdown in modification in the broader market: after surveying financial institutions representing 63% of all first-lien residential mortgages nationwide, the Office of the Comptroller of the Currency ("OCC") recently found that the number of new permanent modifications (HAMP and private) has declined every quarter since June 2010.
HAMP's administrative failures have also been breathtaking. In May 2011, the Government Accountability Office ("GAO") released a survey of housing counselors who work with borrowers seeking HAMP modifications. The results confirmed the widespread anecdotal evidence of the servicers' failures. A staggering 76% reported their views of borrowers' overall experiences with HAMP as "negative" or "very negative." Asked to list borrowers' three most common complaints, 59% of counselors answered "lost documentation"; 54% answered "long trial periods"; 42% answered "wrongful denials"; and 37% answered "difficulty contacting servicer." Counselors also reported excessive servicer delays in reviewing HAMP applications. Other studies and investigations, including the important work of ProPublica and anecdotal evidence from SIGTARP's hotline, confirm the widespread abuse suffered by homeowners at the hands of the mortgage servicers charged with implementing HAMP. Sadly, accountability for these deficiencies has gone largely unaddressed, with Treasury offering only the feeblest gestures at penalizing servicers for their misconduct even though, as ProPublica's recent report indicates, it has been aware of servicer misconduct since 2009.
In short, HAMP continues to suffer from design and implementation deficiencies. As there has been a lot of discussion recently about creating new government programs or expanding existing ones, there are three important "lessons learned" from the HAMP program that must be considered.
Follow Neil Barofsky on Twitter: www.twitter.com/@neilbarofsky
http://www.moneynews.com/FinanceNews/Banks-loan-Repay-TARP/2011/10/07/id/413684
A particularly memorable line:
"There can be no question that Treasury's fear of the servicers, as opposed to the servicers' fear of Treasury, has helped define this program as the failure that it has become."
I am a progressive DEM. BUT, I find myself at great odds with your conclusions.
Appropriate background for anyone beginning to discuss this issue is to read or watch
"Too Big to Fail"
Virtually nobody who was there, has come forward and said that this book/DVD wasn’t largely accurate.
=====================
The author criticizes the powers in charge for not staying true to TARP’s initially stated purposes.
AT THE TIME OF THE MELTDOWN, the FED, the Treasury, and the NY FED, were terrified and worried about just one thing
PREVENTING A COMPLETE MELTDOWN OF THE ENTIRE FINANCIAL SYSTEM.
The clearest illustration comes in the film when GE calls Hank Paulson to complain that he can’t get short term financing to help him meet an upcoming payroll.
IF GE HAS TO CALL THE US DEPT OF TREASURY ABOUT THIS
. . . that should give you some idea of the problems that would have occurred throughout the rest of our society if the economic collapse hadn’t been arrested.
THE INITIAL GOALS OF TARP simply would not fly in America.
Most of the people who are in trouble with their houses, are people who got into mortgages that they could not handle.
This author thinks that the rest of America would stand by and bail those people out-
Maybe, but I don’t think so
SIMPLY- The government has no power to force the banks to take losses on their Home Loans
We know how to make effective programs to help homeowners. It's been done before and there proven strategies. This administration has no interest in doing so.
Unfortunately, this is the big domestic story of our time. And it's too slow-moving to keep the attention of more than a small minority. Just conpare our 100+ comments here to the many thousands that were made about Repubs rolling back environmental protection. That's very unlikely to occur, even if they do hamper protection. But the mortgage crisis is at the root of the economic depression this country is currently enjoying.
As for a solution, bankruptcy courts have routinely taken pension rights away from retired workers. And I've never read that former company executioves have been arrested for underfunding the company's share of the contributions. Of course, these funds went directly to the bottom lines, which executive bonuses. So, these executives personally benefitted from underfunding the pension plans. But the wealthy usually get off. When one looks at the loan process and appraisals, the cause is obvious.
Is it a surprise that Obama is in favor of closing the investigations into criminal behavior and wants to move on?
That would immediately boost the economy and would allow those homeowners to get into lower interest, lower principal notes, stay in their homes and rebuild our communities. It would free substantial dollars to go back into the economy, increase employment and begin the long road back.
They pumped it up, why shouldn't they take it in the shorts?
While I think the Stimulus did the job it was designed to do, stopping the bleeding and triaging the economy, HAMP is a disaster. It's just another program to enable the banks to rape the people on both ends again. The Stimulus was too small by a factor of three.