When a program is badly flawed and not working, the rational thing to do is scrap it. Given that HAMP (Obama’s Home Affordable Mortgage Program), is a complete failure, someone thinking clearly would kill the program.
Instead, president Obama, acting like the typical bureaucrat, wants to massively expand it. Please consider Obama May Prohibit Home-Loan Foreclosures Without HAMP Review.
The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.
The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.
Program Has Failed
The program was supposed to help prevent 4 million foreclosures. It will not come close.
From Peter Goodman at the NY Times: U.S. Loan Effort Is Seen as Adding to Housing Woes
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
… desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
The above snip courtesy of Calculated Risk who talked about HAMP problems in HAMP Seen Hurting Housing. CR offered the following opinion:
For the people that qualify – and aren’t deep underwater on their homes – HAMP is a fine modification program. However there is no way this program will “reach up to 3 to 4 million at-risk homeowners”. I noted HAMP would probably be a disappointment when it was announced early last year.
I expect more delays and “can kicking” that will keep foreclosures elevated for years.
Can Kicking Efforts
The program has failed, but the can-kicking has only gotten worse. My “California Commercial Banker” friend writes:
The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program. The Treasury proposal would require all borrowers who are 60 or more days delinquent on their mortgage to be sought out for participation in HAMP. Mortgage companies would need to try to contact the borrower at least four times by phone and twice by certified mail over 30 or more days before going to foreclosure.
As a banker for the past 18 years, both ideas are complete nonsense to the point of being downright.
First, most financial institutions do not have the man power nor the financial resources to support such ludicrous cow flop. Those institutions would incur additional expenses.
Secondly, if I were a bank CEO, my response would be something like this: Fine Mr. president, if you are going to control how and when we exit a distressed loan situation, then we will require even larger down payments and more prudent underwriting guidelines to qualify for a new home loan to avoid your plan entirely on all new loans going forward.
Thus, Mr. President, your proposal will tighten credit further, killing what little demand there is for real estate.
Lastly, forcing banks to go through this process on every loan in foreclosure would force banks to maintain non paying or non performing loans on their balance sheets even further in time. Those are dead assets producing no income which further impairs their balance sheet.
And aren’t we trying to clean up the banking industry?
Capitalism, Mr. President is the answer, let the banks flush their loan issues and let the market deal with it, all your doing is drawing it out over years and making the problem worse.
Can-Kicking Always A Failure
Can kicking efforts are always a waste of time and money. What needs to happen, and it should be clear by now, is for houses to fall to the point they are genuinely affordable. The second thing that needs to happen is for banks to get rid of bad loans.
The height of can-kicking stupidity is a requirement that would force lenders to contact the borrower at least four times by phone and twice by certified mail over 30 or more days before going to foreclosure. This process will allow deadbeats making no payments to remain in their homes even longer.
President Obama’s proposed HAMP modifications are an effort to boost home prices and prevent much needed price discovery. Worse yet, the proposals delay writeoffs while increasing the costs to do so. Finally the new proposals add increased costs to the institutions who would be forced to follow these new ridiculous procedures.
Radical Proposal Addendum:
I’ve come up with a radical scheme that could possibly work to end the housing crisis:
1) People that can’t or won’t pay their mortgage lose the house.
2) The banks take the house and sell it to people who can afford it.
There are a few flaws:
1) It doesn’t require massive amounts of government money.
2) It doesn’t protect people from their mistakes.
3) It doesn’t punish responsible people who are patiently waiting for houses to become affordable.
4) It could result in the banks that helped create this mess failing.
In spite of these issues, I believe we should give it a try.
Mike “Mish” Shedlock
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