Shahien Nasiripour and Arthur Delaney have done the nation a great service with their very detailed examination of the failed HAMP program, which has succeeded only in delaying foreclosures rather than stopping them, and which has led to more indebtedness for borrowers and more cash for the big banks.

The $75 billion initiative — $50 billion from the bank bailout, $25 billion from government-owned mortgage giants Fannie Mae and Freddie Mac — was designed to induce lenders, servicers and investors to modify distressed mortgages through a series of cash incentives.

It’s not working.

In its first year, 1.5 million people were invited to try HAMP. About 40 percent of those who tried it have been kicked out of the program; fewer than that have been given an actual shot at keeping their homes.

When President Obama took office, it took an average of 319 days to complete a foreclosure, according to Jacksonville, Fla.-based data provider Lender Processing Services. Now it takes 461 days.

Extending the process by which homes enter foreclosure allows banks to continue carrying the loans on their books at full value, delaying loss recognition. That allows unhealthy banks to appear healthy, staving off costly bank failures.

They call it “extend and pretend,” and it’s been the watchword of the Administration, as they try to let banks earn their way out of the terrible mess they got themselves into during the bubble years. The banks could see profits fall in the second half of the year, which means even this scheme, which works much like textbook predatory lending, isn’t working all that well. But it’s certainly not working for the homeowners.

Bea and Terry Garwood applied to JPMorgan Chase for HAMP help in April 2009 and were approved for a “trial” modification that July because they met the core requirements: their house payments took up more than 31 percent of their monthly pre-tax income; they lived in their home; they owed less than $729,000; and they were at risk of default. Garwood says the HAMP trial reduced their monthly payment on their two-story home in Pinckney, Mich., by nearly $500 to about $1,175 — a huge relief, she adds.

A HAMP trial is supposed to become “permanent” after three months, but Garwood’s dragged on for nine. “They kept on saying a bank statement was missing, or one of the documentations wasn’t signed, or they didn’t have the affidavit, or the hardship letter,” Garwood says. “And then on March 19, I received a letter saying, ‘You do not qualify for a permanent modification. You now owe us $12,000.’”

That was the difference between the reduced payment and the actual price of the monthly mortgage loan, plus late fees. This is how it works, and if you don’t pay right away, you’re basically in danger of losing your home every day. The Garwoods, like many others, are losing their home as a direct result of applying for HAMP.

The reason HAMP isn’t working is that there’s no real incentive for the banks to modify the loans. The cash rewards the government offers pale in comparison to the more favorable terms the banks could demand through an alternative private modification. They find HAMP useful to string along homeowners and get some more money out of the loan. But in the end, they won’t do the principal modification (just 0.1 percent of all loans under HAMP involve principal reduction), because there are no consequences for inaction. Cramdown, or giving bankruptcy judges the ability to modify the terms of primary residence mortgages, the way they can with secondary residences and virtually every other major asset, would have provided that hammer. And even the Federal Reserve – yes, THAT Federal Reserve – says it works, in precisely the way advocates have said for months. It forces the banks to the table to work out an agreement.

The actual negative impact of the farm stripdown legislation was minor. Although the legislation created a special chapter in the Bankruptcy Code for farmers and allowed stripdowns on primary residences, it did not change the cost and availability of farm credit dramatically. In fact, a United States General Accounting Office (1989) survey of a small group of bankers found that none of them raised interest rates to farmers more than 50 basis points. While this rate change may have been a response to the Chapter 12, it is also consistent with increasing premiums due to the economic environment. This suggests that the changes in the cost and availability of farm credit after the bankruptcy reform differed little from what would be expected in that economic environment, absent reform.

What was most interesting about Chapter 12 is that it worked without working. According to studies by Robert Collender (1993) and Jerome Stam and Bruce Dixon (2004), instead of flooding bankruptcy courts, Chapter 12 drove the parties to make private loan modifications. In fact, although the U.S. General Accounting Office reports that more than 30,000 bankruptcy filings were expected the year Chapter 12 went into effect, only 8,500 were filed in the first two years. Since then, Chapter 12 bankruptcy filings have continued to fall.

Treasury is now trying to spin that HAMP is only one part of their foreclosure prevention efforts. The fact that the Federal Reserve Bank of New York is foreclosing on borrowers whose mortgages they accepted in the Bear Stearns bailout, or that Fannie and Freddie are working hand in hand with lenders to force borrowers out of their homes, doesn’t give Treasury a lot of credibility on this front. (I particularly recommend the Mother Jones story. People are getting screwed.)

Treasury is trying to tweak the HAMP program, allowing five states to draw from a “Hardest-Hit Fund” and prevent foreclosures. But it’s only about $600 million dollars, not nearly enough to deal with the scale of the problem, as Pat Garofalo notes.

According to Reuters, “some of the programs that states proposed will help unemployed or under-employed people keep up with their mortgage payments. Others will try to assist homeowners who are facing negative equity by reducing the principal of loans that they owe or will be used to finance short sales of homes to avoid foreclosure.”

These ideas — particularly reducing loan principal — are good ones, but I have to wonder why the amount of money dedicated to them is so small and why this response is limited to states with the worst unemployment. After all, as David Dayen pointed out, just $250 million of the $75 billion promised to HAMP has been spent. There’s quite a bit of money to facilitate more intensive foreclosure prevention efforts across the country.

“We’ve got a huge amount of people who are under water that aren’t going to be made whole,” said economist Dean Baker. “If you can’t persuade the banks to do a write-down that will allow them to stay in their homes, then you haven’t done that person a favor.”

If you want to know why we’re still struggling with high unemployment, slow growth and a general malaise, look no further than the foreclosure crisis.