OK, the jury orientation is over, and I’m sitting in the sparkling jury assembly room with excellent working WiFi. Big ups for public services! If I’m just hanging out all day, this should proceed normally.
I wanted to hit this background meeting that Treasury had with a group of bloggers and reporters this week. That was the source of the Mike Allen nonsense, but Shahien Nasiripour has written the most extensive recording of that session, and it’s the stuff on foreclosures and HAMP, not necessarily Social Security, that interests me.
According to this retelling, Treasury defended the mortgage program they set up to prevent foreclosures, which hasn’t met any of the Administration’s initial goals, by saying that homeowners benefited from temporarily low monthly payments and some foreclosures, which were inevitable, were delayed. Here are some of the meatier parts of the brief:
The official touted the ever-growing pipeline of homes likely to enter foreclosure as a success in the administration’s fight to stem the rising tide of home foreclosures. It’s taking longer for homes to enter foreclosure, and it’s taking longer to evict homeowners once they enter foreclosure. The so-called “shadow inventory” of homes — those with severely delinquent mortgages, in foreclosure or already repossessed that have not yet been put on the market — has significantly grown since the administration took office and is estimated to range from 5 to 7 million homes. Through June, borrowers in foreclosure have been delinquent for an average of 461 days before being evicted from their homes, according to Jacksonville, Fla.-based data provider Lender Processing Services.
That’s a good thing, the official said, because it gives the market time to absorb these homes gradually — without leading to a dramatic drop in home prices. While analysts disagree — prices will decline when those homes flood the market, which many, like Mark Hanson, a housing industry analyst based in California, believe to be a virtual certainty — the official pointed to the futures market where traders are betting that home prices will remain stable through the fall of 2014.
This is literally incredible to me. The Treasury official is saying that extend and pretend – squeezing a few more payments to the banks out of borrowers before letting them succumb to the predations of their lenders – is a positive. That can only be told from the perspective of a wealthy homeowner looking at their property values. For the struggling borrower, that’s a disaster on a number of levels.
First, they’re sinking more money into their underwater homes with the hope that they can reach an affordable solution with their lender, a solution which this official implicitly admits IS NOT COMING. Second, the official is incorrect, at least according to information I’ve been told by borrowers (I should have the first of these reports next week, but other profiles are out there). When a borrower accepts a temporary modification, they are still on the hook for the higher payment if they get bounced from the program. The Treasury official thinks it’s a good thing that they had lower payments for a short period of time, but if they get denied a permanent mod, THEY ARE RESPONSIBLE for the difference between the temporary mod and the actual payment, and the bank can foreclose on them at any time for failure to pay that difference, which after several months can add up. This puts tremendous leverage on the side of the banks. To this Treasury guy, that’s a good thing.
Here’s some more:
In February 2009, President Obama vowed in front of an audience gathered at Dobson High School in Mesa, Ariz., that the administration’s signature effort, the Home Affordable Modification Program, would “enable as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.” The $75 billion initiative — $50 billion from the bank bailout, $25 billion from government-owned Fannie and Freddie — was designed to induce lenders, servicers and investors to modify distressed mortgages through a series of cash incentives [...]
The program has been nearly universally panned by housing consultants, Wall Street analysts, economists, and homeowner advocates. But the official was adamant that it was the best option available.
The administration knew they’d only reach a fraction of those needing help, the official claimed, and that millions of homeowners would ultimately lose their homes to foreclosures the administration chose not to prevent. Taxpayer money was on the line, and the administration couldn’t justify spending the amount of money it thought would be necessary to save those homes, the official said.
Nevertheless, HAMP remains the best option — even though it’s reaching fewer borrowers than forecast. Other programs, the official noted, would have been either too expensive or unfair. Homeowners who consciously bought more homes than they could afford shouldn’t be bailed out.
That’s just bullshit. The Administration said very specifically that they would reach 3-4 million borrowers with this program. This Treasury official is acknowledging that they lied, and that the impact was always going to be about 10% of that number. And, he says, that’s a good thing, because homeowners who bought too much home shouldn’t be rescued. What about bankers that bought too much mortgage-backed security?
He says that the program, if it tried to help more borrowers, would be too expensive. But the Special Inspector General for TARP has shown that, of the $75 billion earmarked specifically for this program, only $250 million has been spent. They haven’t even tried to make this program work at all.
As for the official’s statement that 1.2 million homeowners got a temporary modification, “what was essentially a tax cut of more than $500 a month — all without cost to the taxpayer,” again this neglects the fact that the tax cut was TEMPORARY, and the borrower would be on the hook for the whole amount in a lump sum months later if they were denied their modification. That’s, um, why it was at no cost to the taxpayer. Because it was a mirage, and the cost has not been borne by the lender or the investor. That’s a flat-out lie. Either that or a lot of lenders are lying to their customers (which is plausible too).
The Treasury official said that lowering the principal on the mortgages, or allowing bankruptcy judges to modify the terms of the mortgage, were solution that were “either too expensive or Congress wouldn’t have supported it.” As for “too expensive,” tell that to the Cleveland Fed, whose research fully supports cramdown, and notes that it ends up rebalancing the power relationship between the lender and the borrower, rather than leading to a bunch of bankruptcy judges to write down mortgages. As for “Congress wouldn’t have supported it,” that’s your fucking job to work with them, and the Administration frankly didn’t lift a finger when cramdown failed in the Senate.
The whole tone of this absolutely infuriates and disgusts me. “Hey, we gave the losers a chance, what do you want from us,” is generally the attitude. Well, we want a foreclosure aid program that isn’t set up like a predatory lending scheme, and that doesn’t give all power to the banks to decide at their discretion whether to help people. And we want the money appropriated to the program to actually be used. And we want primary mortgages to be treated like everything else in bankruptcy. And we want something, just something, that isn’t done entirely in service to the banks.
I’m glad for my blood pressure that I wasn’t at this thing.
UPDATE: Mike Konczal, from a different blogger meeting at Treasury, adds this tidbit: Treasury expects the entire $50 billion of TARP money scheduled for HAMP (the other $25B comes from Fannie and Freddie) to be spent, despite only $250 million having been spent so far. I agree with Mike: “I didn’t believe it; we will see.”