The pushback from the Administration on one particular story arising from the foreclosure fraud settlement has been pretty intense. You cannot say that Shahien Nasiripour doesn’t have the attention of HUD.
Today, they devoted an entire blog post (unsigned, from “HUD Public Affairs”) to refuting Nasiripour’s story in the Financial Times (which they don’t link, so I will) about how bank servicers can count HAMP modifications toward the “credits” in the foreclosure fraud settlement. But really they only refute the title of Nasiripour’s story:
The article, entitled “US taxpayers to subsidise $40 bn housing settlement,” argues that there is a taxpayer subsidy because modifications performed under the Treasury’s Home Affordable Modification Program (HAMP) are eligible for credit under the settlement.
In reality there is no such subsidy. Servicers cannot use HAMP incentives to meet their obligations under the settlement, plain and simple.
This does not refute Nasiripour’s story, which includes this very point from Administration officials:
Federal officials involved in negotiating the settlement defended the arrangement, pointing out that the amount reimbursed to the banks could not be directly used towards fulfilling settlement obligations.
Andrea Risotto, Treasury department spokeswoman, said this system “leverages a way to help more people”.
Usually, the writers don’t have much of a say in the headlines, so HUD really has a beef with the editorial staff at the Financial Times. But HUD also leaves key questions unanswered in their post. They say that “if a servicer receives a HAMP incentive of 40 cents for every dollar of principal reduction, it can receive credit at the applicable rate on the remaining 60 cents… in no event can the servicer receive more under the settlement than it would have in the absence of HAMP incentives.” But does this include the additional HAMP incentive for the borrower staying current? Also, isn’t it the investor, not the servicer, who receives incentive payments in the principal reduction plan inside HAMP?
In addition, if this is coming on line with the settlement over the next 6-9 months, as eligible underwater borrowers are identified, why would any servicer in the short term do a principal reduction through HAMP? As HUD says in their post, “most HAMP modifications do not include principal reduction.” That, of course, is why it has such a high re-delinquency rate (up to 30% of borrowers go delinquent within 18 months), because the modifications that servicers perform in HAMP are unsustainable. The entire point of the new HAMP tweaks was to encourage more principal reduction. So why add an incentive to delay principal reduction for 6-9 months?
HUD claims that they could not have exempted HAMP from the settlement, because “it would have freed (servicers) from HAMP’s extensive compliance regime, reporting requirements, and borrower-protection features.” This is a non sequitur. You could very easily have put those compliance guidelines into the settlement. It would have been a simple copy-paste. HUD answers this by saying that “it would make it less likely that HAMP-eligible borrowers would receive principal reduction.” I’m not following the logic there at all. You could just include the evaluation and reporting requirements across all loans as part of the settlement.
And it goes without saying that, until there are terms on a sheet of paper that everyone can read, these claims by HUD just aren’t entirely credible. We don’t know what’s in the settlement yet. That’s a factual statement.
I’ll say this, the criticism appears to be getting to HUD. Some Connecticut lawmakers savaged the miniscule $2,000 check to foreclosure victims (which the Attorney General of the state, who was on the settlement’s executive committee, characterized as $1,500 – what does he know that we don’t?) that’s part of the settlement. Heck, even Pat Robertson is calling for corrupt bankers to be put in jail, citing the experience of Iceland. It must be lonely defending this settlement.
UPDATE: I asked Neil Barofsky, the former special inspector general for TARP and NYU professor, who was quoted in the Financial Times story that HUD goes after here, for his comments. Here they are:
If (HUD) had included in the settlement agreement a provision making HAMP’s Principal Reduction Alternative mandatory when NPV+ (a long-standing recommendation for all servicers made by SIGTARP), and then exempted these HAMP subsidized modifications from receiving credit under the settlement, they would have reached far more homeowners.
And why is HUD bragging that its settlement terms lack the obviously inadequate compliance requirements and borrower protections that are part of HAMP? You would hope that they would want to exceed that failed standard, not celebrate that they will be far under it.
Just to parse this, NPV+ is a test required for principal reductions in many pooling and servicing agreements with investors. Basically, Barofsky is saying that Treasury could have made principal reductions mandatory through HAMP when that equation comes out as beneficial, and then forced the settlement’s principal reductions separately. That’s how you could reach the maximum borrowers. The rest speaks for itself.