When I took to Twitter the other night and mused that Chris Hayes should use some of his time filling in for Rachel Maddow to highlight the failed HAMP program and the forgotten foreclosure crisis, I didn’t think he’d come up with something so focused and cogent. But there it is to your right. Hayes hit the important point – that this is a Treasury program, and they had $50 billion to do basically whatever they wanted to stop foreclosures. The Administration chose this as their method, without any need to hedge because of Republicans or ConservaDems. And what they chose may be, as Chris said, “the single biggest failure of the Obama Administration.”
I knew that some private lenders were engaged in loan modifications as well, but I didn’t know that these alternative programs have actually helped more borrowers than HAMP, which is truly pathetic, considering the resources at the disposal of the federal government. Servicers have performed 800,000 of these alternative modifications in 2010, compared to just 389,183 through HAMP since March 2009. However, these modifications have no government oversight, and are more watered-down than what would be mandated under HAMP, which is why the lenders are opting for them.
Despite a price tag of $50 billion, HAMP has only spent $250 million, or 0.5%. That’s because they almost don’t have the ability to spend it, under the structure of the program. The money goes into rewards for the lenders to modify loans, yet it’s at the lender’s discretion whether or not they choose to make a permanent modification through HAMP. So the lender decides the flow of the money, in a sense, and they’ve by and large determined that the reward from the government isn’t worth it. They’d rather perform alternative modifications with less favorable terms for the borrower.
I suppose you could say that getting 389,000 permanent modifications for the small price of $250 million dollars isn’t a bad return. But a significant number of those borrowers will eventually default, as well as the majority of those securing modifications outside the program. And of course, 389,000 is a drop in the bucket compared to the millions who need help. Many of those interfacing with HAMP come out more indebted at the end. I can’t see how that’s a good use of public money. Basically the programs of foreclosure mitigation, whether public or private, serve only to string along the borrower and extract a few more payments out of them.
As Hayes said in his powerful close, “If the 25 year-old community organizer Obama were around to see HAMP program, I think he’d be disgusted.”