I have not read Sheila Bair’s upcoming book, “Bull by the Horns,” but it’s on a growing list (I hear former Senate staffer Jeff Connaughton’s book is excellent as well). Arthur Delaney notes that she had harsh words for HAMP, the Administration’s failed program to rescue homeowners facing foreclosure. And she didn’t shy away from accurately describing the program as one that fostered predatory lending.
In her new book, “Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself,” Bair recounts how her own housing proposals were passed over in favor of a much weaker program, which she knew would never save 4 million homes. Bair served as chairwoman of the Federal Deposit Insurance Corporation until July 2011.
“At the Phoenix announcement, the president was masterful in announcing the program, though I cringed as he threw out what I considered to be wildly inflated numbers on the programs’ impact,” Bair wrote. “Even with our own, more aggressive proposal, we had estimated the number of successful modifications at 2.1 million tops.” [...]
The huge number of loans that needed to be reworked, combined with burdensome documentation requirements and a lackluster effort on the part of banks’ mortgage servicing divisions, guaranteed the program was “doomed to failure,” according to Bair.
“What’s more, it cheated borrowers,” she wrote. “Because Treasury wanted to demonstrate quickly that huge numbers of borrowers were being modified, it let borrowers enter into ‘trial modifications’ whereby they would start making reduced payments pending completion of all of their paperwork. But many of the borrowers could not provide all of the extensive documentation required by the program, so they would be put into foreclosure even though they had been making timely payments for months!”
I’m not sure that the documentation associated with the program was the problem, or the crutch that banks then used to deny permanent modifications long after the trial period expired. Bair seems to be more enticed by the “faulty design” theory of Treasury’s failure, than the “intentionally faulty design” concept advanced by Neil Barofsky in his book Bailout. But either way, the conclusion is the same: HAMP cheated borrowers by putting them into a trial program to squeeze out their last remaining savings, and then trapping them, demanding immediate payment of the difference between the trial and original payments. This did lead many into foreclosure just a little further down the road, so banks could absorb them. There was never any desire to protect homeowners or save their homes, which Bair says flat out: “HAMP was a program designed to look good in a press release, not to fix the housing market… I don’t think helping home owners was ever a priority for them,” she says, referring to Tim Geithner and Larry Summers.
Unfortunately, this book also plays the “Geithner and Summers undermined the President” storyline, which gives the President far too little credit, less than he would give himself. He holds himself responsible for what happens under his watch, and those discussing his policies should do the same.
Bair really goes after Geithner in the book, so much so that the New York Times’ Dealbook page had to grab Lee Sachs to defend the Treasury Secretary. Specifically, Bair objected to post-crisis bailouts, which she thought were designed mostly to funnel money to Citigroup. In addition, she says that Geithner and others froze her out of the decision-making process, making not-so-subtle hints at sexism in the financial regulatory space.
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