At 11 am today, fifty Americans from 10 states will gather outside the Department of Treasury to demand that Secretary Geithner summon the same determination he demonstrated in propping up failing banks to help everyday Americans save their homes from foreclosure.
While there is much debate in Washington about the shape financial reform should take, it is clear that Treasury's Home Affordable Modification Program (HAMP) is not getting the job done.
Trial modifications stand at only 20% of those families Treasury has estimated are eligible. And what's truly frightening is that less than one-half of one percent of those who have received trial modifications has been transitioned to permanent modifications.
There is a constructive role for government to play in preventing foreclosures, but that role must include being tougher on lenders and servicers. As we've seen, the market's idea of self-correction means kicking tons of people out of their homes and littering the nation with millions of vacant bank-owned properties.
In my hometown of Chicago, foreclosure filings doubled between 2006 and 2008. And trust me, 2006 wasn't pretty. Now, in the first half of 2009, foreclosures have increased another 22% over the previous record year.
No community has been immune - people from all walks of life and all parts of Chicago have been impacted.
The concentration of foreclosures in some communities is particularly troubling. We have three neighborhoods in Chicago where there are more than 200 foreclosure filings per square mile. The juxtaposition between this level of devastation in America's cities and towns and the record profits being earned on Wall Street is simply more fuel on a fiery populist sentiment that is brewing in this country.
As the Administration tries to calm the waters by mapping out a strategy to create jobs, it can't brush over the fact that their strategy on foreclosures has failed. A first step in correcting the ship might be for Secretary Geithner to come tour some of the communities that have been ransacked by foreclosures. He then might muster the same vigor and creativity that we witnessed when he crafted the sale and rescue of Bear Stearns.
One of the critical problems with HAMP is that Treasury's carrot and stick approach is missing the most crucial ingredient - there's no stick. With the holidays approaching it would be nice to see Treasury be as tough with lenders and servicers as those same institutions have been on America. Some simple fixes would go a long way toward improving the program:
- Punish loan servicers that fail to dramatically increase the number of permanent modifications that they make available;
- Mandate principal reduction as a primary tool to prevent foreclosures, not just as a last resort;
- Make it possible for families to reapply to the program if their economic situations change;
- Make the HAMP process more transparent and implement a true appeals process so families in foreclosure can see how to qualify and have recourse if rejected by their servicer;
- Use a portion of the50 billion foreclosure prevention allocation to set up a mortgage relief program for unemployed homeowners. This could be modeled on the very successful Homeowner Emergency Mortgage Assistance Program in Pennsylvania.
It is disheartening to say the least, that the member of President Obama's cabinet with the most power to stand up to big banks has not done more to make them modify loans and prevent foreclosures. As it stands, one can't help but wonder if Treasury feels the average American is too small to help.