So here’s a major breakthrough in the foreclosure crisis and in particular the failed HAMP program. It doesn’t mean anything’s going to happen, but it means a significant chunk of the majority caucus in the Senate wants a radical overhaul of HAMP.
Sen. Robert Menendez organized a total of 18 Democratic Senators in writing a letter to Treasury Secretary Tim Geithner, slamming HAMP and calling for very significant changes to the program, to try and make it functional again. The Senators signing the letter include both Senators from New York, home of the major banks and financial institutions involved in the foreclosure crisis, as well as:
Robert Menendez (D-NJ), Al Franken (D-MN), Patrick Leahy (D-VT), Sherrod Brown (D-OH), Kirsten Gillibrand (D-NY), Debbie Stabenow (D-MI), Bernard Sanders (I-VT), Frank Lautenberg (D-NJ), Daniel Akaka (D-HI), Carl Levin (D-MI), Tom Udall (D-NM), Sheldon Whitehouse (D-RI), Benjamin Cardin (D-MD), Mark Begich (D-AK), Maria Cantwell (D-WA), Jeanne Shaheen (D-NH), Charles Schumer (D-NY), Jeff Merkley (D-OR).
To me, the letter reads like these Senators have had it. Had it from hearing from constituents who tell them horror stories, had it with the Treasury’s cloying comments that HAMP is successful, had it with the failure that is dragging down liberalism and the entire Democratic Party. They seem particularly exercised that Treasury has done absolutely nothing to enforce existing law under the program.
The “robo-signing” is directly attributable to banks and servicers not doing proper due diligence, which is inexcusable when dealing with a matter as monumental as the seizure of a family’s home. But the more important point is that if many banks and servicers are not handling even basic foreclosure procedures correctly, it is likely that many are also not correctly evaluating homeowners for mortgage modifications. We ask that the Treasury Department hold banks and servicers accountable with a significantly more thorough review process than Treasury has implemented thus far. For example, too often the mortgage modification appeals process consists of the government simply repeating the unsupported assertions of banks and mortgage servicers about homeowners not being eligible for a modification.
While some progress has been made, it is clear that the Home Affordable Modification Program is neither working as well as intended nor reaching the desired number of homeowners.
The letter contrasts the claims of as much as 7-9 million borrowers using HAMP for modifications, with the reality of just 495,000 permanent mods and 729,000 rejections. They also note that just 1% of the money allocated for HAMP has been spent, 18 months after the program was instituted. And they add, “it is even more sobering to continually hear from constituents who owe more than their house is worth and can’t get a mortgage modification or refinance from their bank. Countless constituents tell us stories of being stonewalled by banks for very long periods of time; of not being told the reasons for the rejection of their modification request; of significant delays caused by banks losing paperwork; or of trial modifications cancelled with no rationale. We cannot let this continue.”
Here are the steps that they want Treasury to take immediately. Importantly, Treasury would not need legislation to take any of these steps; they could implement all of it without having to go through Congress.
1) Actually enforce the program. There have been no sanctions for any servicer who violates HAMP. You cannot expect the servicers to correct their mistakes if they have no good reason to do so.
2) Create an Office of the Homeowner Advocate. This is something Al Franken’s been working on for some time. It would create a legitimate appeals process for HAMP, with an independent advocate who can mediate disputes and take complaints. It’s no different from having a consumer advocate at CFPB watching over the banks.
3) Automatic conversion. This is very simple: “If a homeowner successfully completes a trial modification, they should be automatically extended a permanent modification.” Treasury could just mandate that. It would end this horror of people waiting a year or more to hear about their modifications, would cancel red tape, and would add some much-needed fairness to the system.
4) Revise eligibility standards: The Senators want unemployment insurance included in the income test when determining eligibility. They also want widows and surviving children, who may not be on the mortgage note but who stand to inherit the mortgage to be able to get a modification.
5) More transparency: Homeowners should be able to see all the documents surrounding their modification, and the denial claims made.
6) Net Present Value: Treasury has come up with this Net Present Value test to determine eligibility for a modification, but has never made it public. They promise to release it by February 2011, but the Senators want it out in the public now, so homeowners can see why under the formula they have been denied modifications.
None of these would require any Congressional action, but the Senators make clear that Treasury hasn’t asked them to take any action to improve the program, either. They cite a recent meeting between Tim Geithner and homeowner advocates, where Geithner said “there are legislative guidelines that can hinder [Treasury] on doing anything.” The Senators don’t buy it, and ask for legislative suggestions from the Treasury Secretary.
The bottom line is this: these Senators are pissed off. They want to see some changes immediately. Servicers are abusing their constituents and this represents an obstacle to their continued employment, to say nothing of them actually possibly caring about this abuse.
This is one of a couple developments today. The Federal Reserve has called for a new round of stress tests, just a day after the Congressional Oversight Panel called for this. At least some element of the ruling class has begun to take these problems seriously. Now’s the time to push even more, so the abusers don’t get away with this behavior.