Friday, January 28, 2011

The End of HAMP?

I know its just January, almost February but for fiscal minded politicos, its spring time and its time to clean, a little weeding if you will.  We are seeing it here in Washington as cities like Everett and Lynnwood cut back on teachers and other staff, and even at the state level as Governor Gregoire puts the axe to under-preforming programs and asks for whole sale cut backs in expenses and personnel.   News from the other Washington (D.C.) that there are further cuts on a national level.  One in particular is HAMP.

From a professional stand point, I have been less than accepting of the program.  The Home Affordable Modification Program (HAMP) for short has been an abject failure.  Nationwide, until last summer we had seen the modification to application ratio sit at about 3.6%.  Recent news has shown that number climbing to about 7% and in particular locals where the states have implemented special hotlines and other foreclosure deferment programs like Colorado, the number has climbed to 12%.  Not exactly favorable numbers.

To be fair to HAMP, a lot of applicants cannot qualify for the modification.  The target is 31% of pre-tax income.  With the loss of jobs, loss of overtime, or any combination of decreased earning capacity will cause some homeowners to be in a situation to where they simply cannot afford to stay, even if a modification was made to meet 31%.

The issue that I take is that in many instances is that the bank essentially gets to look at the value of the current loan as a starting point for determining if it will in fact modify.  If the bank is not better off, it has not incentive to modify and won't.

Jim Jordan, Darrell Issa and Pat McHenry, all Republican congressmen have introduced a House Bill that would clean out HAMP due to its failure in meeting the projections of 3 to 4 million modifications as opposed to the 579,000 that had been accomplished through December. 

The repeal of these bills in of itself will do nothing to cure the foreclosure crisis.  In fact, for the handful of people it helped, it would be detrimental.  The problem with those bills is taht there is no private enforcement, no consumer protection act application, no provision requiring good faith action on the part of the bank.  When there is no enforcement, the bill or regulation is worth about as much as the paper it is written on. (Sorry for the dangling participle)

The beauty of the Foreclosure Mediation bills that I have commented extensively upon this week, is that there were finally some teeth.  No more paper tigers here.  The attorney could, on good facts, get a finding that the bank had acted in bad faith.  Bad Faith suits are enough to make executives soil themselves and that is why the banks and their big law lackeys have made many arguments against the passage of these bills.

Though I applaud the removal of under-preforming and broken vestiges of government, it is much like a garden with weeds.  You can pull weeds all day long, but if you don't put something good in its place, the weeds come back.  Spring clean, put things in order, but don't leave us without any tools to fight the bank, the weed will just come back.

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