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January 20th, 2010

Let’s Not Turn Nothing Into Something



In February of 2009, President Obama announced the Home Affordability and Stability Plan (HASP). The plan was broken down into three main initiatives: 1)a “low-cost” refinancing program “that will help as many as 4 to 5 million responsible homeowners”; 2)a “stability initiative” designed to modify millions of home loans; 3)a “strengthening” of Fannie Mae and Freddie Mac.

Let’s see here: the touted refi program — HARP — is fading into the sunset (no one even talks about that program anymore — how many homeowners have even used this, does anyone know?), and Fannie and Freddie’s future has been shrouded in a cloud of uncertainty. The GSEs have recently been extended an unlimited amount of taxpayer dollars, suggesting that their future losses will be even steeper than the $400 billion they were originally promised.

The only program left standing with any significance or attention being paid to it is the Home Affordable Modification Program (HAMP). Despite its well-documented failure at preventing many foreclosures, HAMP not only remains the central tool for improving the housing market, but some are even beginning to claim the program as a success. However, this “success” is coming from an unintended consequence of the program.

In this regard, let’s be careful that we don’t begin to turn nothing into something.

HAMP, which was originally designed to modify the conditions of a home loan — including the term, balance, and/or interest rate — to promote continued affordable home ownership amid difficult market conditions. However, it’s now being praised as a stabilizer of home prices, and “a vehicle” for delaying foreclosures, as though these were the goals of the program:

But some analysts say the program is a success in one sense: By slowing the flow of foreclosed homes to the market, it has helped prop up housing prices, at least for now. The administration’s Home Affordable Modification Program, or HAMP, and other state and federal efforts to avert foreclosures have helped “buy time” for the housing market, preventing steeper home-price declines, said Ajay Rajadhyaksha, a managing director at Barclays Capital in New York.

The official goal of HAMP is to reduce monthly loan payments for distressed borrowers so they can afford to stay in their homes. But housing analysts at UBS Securities in New York, in a report last week, described HAMP as “a vehicle to delay the timing of new foreclosures hitting the market.”

Creating a Bad Habit

Changing HAMP’s concept and measurement of success is a bad habit that we should stop ourselves from getting into.

HAMP was NOT designed to delay foreclosures, it was designed to prevent them. In his speech in Phoenix, Arizona on February 18, 2009, the president said that the modification program would target “…loans at risk of default and foreclosure.” The executive summary, which was made available to the media the very same day (yet is no longer available), specifically described the modification program as a tool to provide stability to “at-risk homeowners,” not borrowers who have already defaulted.

In the Name of Success

We hope that the same course of action taken with the Troubled Asset Relief Program (TARP) won’t happen with HAMP. The reactionary policies that continue to chang the purpose of TARP several times, the latest in the form of the “financial crisis responsibility fee,” could very well happen to HAMP, all in the name trying to claim any kind of success for a flawed program. Keep your eyes peeled for more claims about toting the “success” of HAMP as a tool to delay foreclosures or some other unintended benefit — even though that isn’t what the program is intended to do.

2 Responses to “Let’s Not Turn Nothing Into Something”

  1. Obama’s Loan Modification Program a Bust So Far – Less than 1% of Applicants Get Relief | The Chicago 77 Says: January 26th, 2010 at 6:48 pm

    […] 13-million homes could fall into foreclosure within the next five years. With loan modifications not seeming to work, it is no surprise that these numbers are so grim. Share and […]

  2. sld Says: April 26th, 2010 at 6:38 pm

    Apr 16, 2010 12:39:32 PM Elizabeth Warren is an American hero. Smart, sensible, honest – the rarest treasure in Washington. Apr 23, 2010 10:01:31 AM BEHIND CLOSED DOORS The US Treasury has no idea what really is going on behind closed doors with regards to The Making Home Affordable Program. Yes it sounds like great help for those struggling to save their America Dream. Look at the numbers. Not the homeowners with trial offers made by banks/mortgage companies, because that’s a joke. We are talking permanent modifications to these homeowners WHO HAS BENEFITTED FROM THIS PROGRAM??? Washington, this is how the story goes. Whether the cause of a delinquent mortgage was due to lost jobs, illness, death or divorce in a family, or maybe victims of predatory lenders looking to fatten their wallets, knowing these homeowners could never make the payments. The fact of the matter is it HAPPENED. Now they contact their lenders for help. Packages are sent to be completed along with required documentation to be returned by a certain deadline. Trust me when I say this, the documentation IS being sent not only on time but with every last piece of paper they could possibly want to review. Now the phone calls begin. What would you say is the average hold time to speak with a person in the Home Retention Dept.?(Washington just question any homeowner.) So after you have been on hold long enough to have cleaned the bathrooms in your home, you are being informed all your requested documentation has not been sent in. How could this possibly be you say to yourself? I know I checked and double checked and had someone else check it for me. Seems funny, but I am under a great deal of stress. So I sit down and resubmit the MISSING OR UNSIGNED DOCUMENTS THEY CLAIM WERE NOT RECEIVED. Phone calls need to be made again. Well do I stay home from work, if I am one of the lucky ones in this country to be employed, so I can be on hold AGAIN? Look on the bright side the bathrooms need cleaning once more. Months go by; my stress level has escalated beyond belief, praying they will consider my request under this program. GUESS WHAT??? Not the letter I was hoping for. Dear Customer—your mortgage has now been transferred. We now are your new lender. (Oh my God did I read something about the Feds shutting them down or that that the lender is bankrupt?) Please contact us regarding your mortgage. We may be able to assist you under THE NEW MAKING HOME AFFORDABLE PROGRAM. Now I am informed a whole new package needs to be completed. So where is all my personal information that was sent to my prior servicer? (Tax returns, copy of my driver’s license, bank statements, pay stubs, copy of a utility bill (That’s so they can see I still reside at the premises. Where was I going?) Seems to me with all this information floating around lost, it probably has landed in the hands of those that would have a grand time with IDENTITY THEFT. Any one else worried about this? So I am back to square one, paperwork, long hold times, and new packets to be signed and returned by a deadline. No problem, my family loves our home and if we are one of the fortunate ones that this program will help then it is worth it. But hold on one minute. Same old story, missing paperwork, unsigned documents? Do they forget I spent months playing this game with my prior servicer? Let’s go back to the phone calls. Why on Monday can I call and speak with someone in Home Retention and be given one story, and yet on Thursday a whole new story or different information regarding the progress being made on my modification? Seems to me in this day and age updates within their systems should be effortless. No one is on the same page. Trial payments are a story in itself. You better have planned for the incompetence within these financial institutions. Not one of them is capable of crediting your account. Hopefully you have saved every bit of information regarding your payment. (i.e. certified receipt of acceptance at their office date and time and who signed for it.) Anything you as the homeowner can do to prove those payments were sent. One full month of calls every other day to correct THEIR error. Good God save us all. If a financial institution has such poor record keeping this nation doesn’t stand a chance. Yet they continue to put the BLAME on homeowners. So where do we as homeowners stand with our elected officials, and the Treasury Dept. in regards to this PROGRAM to help keep our country from complete ruins? Certainly don’t expect the mortgage companies or banks to work with the struggling homeowners. Lenders truly are the only ones on the receiving end of this program. Homeowners stand up for you. Refuse to allow these lenders to keep blaming YOU for the reason this program has failed. They have no intention to do anything more than keeping their hands out for the Government Money. Contact every elected official in your area, and tell Washington WE HAVE HAD IT. No I am not an angry homeowner. I am just someone trying to work on their behalf (at no cost to them). One more question? Where do you expect to house all these homeless people? As for all the banks and mortgage companies, and I have dealt with MANY, you are a disgrace benefiting on the monies allocated to help struggling families across this country. You employ IDIOTS. But then again that WORKS TO YOUR BENEFIT. With all due respect MR. President you were looking for some suggestions for improving this program and the crises that is widespread in this country? The answer is pretty simple BEHIND CLOSED DOORS of these financial institutions you will find the answers to the problem. They are fooling everyone including WASHINGTON. S.L.D Massachusetts Apr 24, 2010 12:13:53 AM Wow, thank you SLD from Washington. As I read your comment, it becomes more clear that oh my goodness this country is not on the right track! Apr 25, 2010 2:01:14 PM What SLD said is absolutely true! I am surrounded by people who were knowingly sold bad loans and are now trying to renegotiate in good faith and are being intentionally manhandled by lending institutions. After knowingly making high-risk loans, then gambling on those loans, then getting taxpayers to bail them out (through government handouts and through the government\’s purchase of their toxic assets, which they KNEW were bad all along), banks and lending institutions are KNOWINGLY STALLING to see what else they can milk out of citizens. If banks and lending institutions are able to get out of contracts and have their vulnerable financial positions restructured the government MUST DEMAND that banks pass that benefit down to citizens. It is outrageous what banks and lending institutions are getting away with and how working people are being abused. I am AMAZED by the sheer number of people I know who are doing everything they are told to do to renegotiate terms that are beneficial to all involved, yet they are getting nowhere. My neighbors on both sides are being led on by banks and there is no one there to prevent this kind of abuse and exploitation from happening. Where is the government on this? The chief job of the government is to protect its citizens and yet in this case, this tragic collapse of the system — wrought by banks!! — the gov\’t seems strangely quiet. Look at the stories emerging about how e-mails among Goldman Sachs executives say that they were \”making some serious money\” as housing collapsed and people\’s lives were damaged. This collapse was brought about because of their risky and irresponsible lending practices. EVERYONE should be able to restructure. It is unfair, unethical and in any reasonable sense ILLEGAL for the government to continue to allow banks to to exploit the very people who bailed the banks out through their tax dollars, the very people from whom the government derives its power. We demand action from our elected officials. I urge you to call your representatives, local, state and federal. Demand that working class people also have a seat at the table and an opportunity to benefit from THE VERY RELIEF THEY ARE PAYING FOR FROM BANKS. klm in Los Angeles

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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