The Home Affordable Modification Program (HAMP) was designed to help struggling homeowners modify loans so that they could avoid defaulting on their loans and stay in their homes, but the program has been roundly criticized as a failure. Now, the government is further extending the program despite the market’s formidable recovery and critics say HAMP is costing taxpayers more than what it’s worth. Original estimates cited the ability to help up to 4 million people, but to date it has helped less a million, many of whom have re-defaulted on their modified loans. For more on this continue reading the following article from TheStreet.
The Obama administration is extending the Making Home Affordable Program even though the program has not achieved its goals and they say the housing market has begun a recovery. Known as HAMP, the Treasury launched the program in 2009, saying it would provide relief to 3-4 million at-risk homeowners, helping them avoid foreclosure. The Treasury brags that 1.1 million homeowners have received permanent modifications, but currently only 862,279 homeowners are in active HAMP modifications and as of March 31, 2013, 312,000 have redefaulted on their modifications.
The Treasury originally committed $50 billion for the program and has since reduced that amount to $38.5 billion and has actually only spent $7.3 billion. However, it has cost the Treasury half a billion dollars ($588 million) to administer the program. So, it spent $682 to give these homeowners roughly $8,400 each. The program was scheduled to end in December of this year, but has been pushed out two more years to 2015, even as Treasury Secretary Jacob Lew acknowledges that the housing market is gaining steam.
Financial Services Committee Chairman Jeb Hensarling opposes the extension. He said rather than extend the failed program, the administration should work with Congress to terminate HAMP, rescind its unspent funds and use those billions of dollars for deficit reduction. Of course, the Treasury Department believes by extending the program, more struggling homeowners will be helped. Unfortunately, the Special Inspector General of the TARP program has not seen long-term favorable results from the program. Redefaults from those in the program the longest are rising at an alarming rate. As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at an eye-popping rate of 46.1% and 39.1%.
In its defense, the Treasury Department points out that its redefault rate is lower than other banks and highlights a study done by the Office of the Comptroller of the Currency, or OCC, that supports this. Of course the OCC is part of the Treasury Department and it’s obvious the topic of redefaults is a sensitive one since it needed to prove it wasn’t so bad. A quick look at JP Morgan’s (JPM) recent quarterly filing, though, shows a redefault rate in modifications between the range of 14-27%. Citigroup (C) didn’t break out a percentage, but its redefaults in residential mortgages among those that defaulted after modification dropped from $439 million in March 2012 to $236 million for March 2013. Dropping, not increasing.
Even the OCC wrote in its most recent report, "The decline in new foreclosures and foreclosures in process reflects a strengthening economy, a declining number of serious delinquencies, and an emphasis on alternatives to foreclosures." So, why spend probably another half a billion dollars to extend a program that has not lived up to its expectations? One that has only proven the longer a homeowner is involved in HAMP, the more likely they are to redefault. Even those that receive a permanent modification are getting cancelled at a rate of 14%.
One reason was to align HAMP’s deadline with other extended deadlines for other programs like the Home Affordable Refinance Program (HARP), a refinancing program administered by the Federal Housing Administration (FHA). This makes perfect sense. Spend an additional half a billion dollars so a deadline will align with a separate program from a different department. The HARP program isn’t even reflected in the SIG TARP report on TARP expenditures anymore. At one time HARP was reviewed along with the Making Homes Affordable program, but not anymore. The Special Inspector General is also worried that an extension of the program could lead to more fraud.
Ultimately, the extension is about saving face. The Treasury is going to spend $18 million in an outreach program to try to convince more homeowners to ask for assistance. The money goes to non-profit groups that will receive $5,000 to kick off the program and $450 for each application, whether it results in a modification or not. This program began on May 1, and the HAMP extension went through on May 30. Excellent timing.
If a homeowner hasn’t requested help over the last five years, does it really make sense to spend $18 million to go out and find them? Beg them to apply for help? Pay groups to find them? Only if it will result in the ability of the Treasury to be able to say it helped more people. When the Treasury is pressed for an answer, a spokeswoman could only repeatedly say they wanted to help more people. Really the Treasury only wants to tout the number of people it has reached out to to help, not the number of people that can get approved and can actually stick with the program.
Its latest performance report leads off saying it has given assistance action to 1.6 million homeowners and then only includes positive looking charts. The cancellation numbers are printed but not displayed as prominently.
To be fair, the Treasury Department may have been thwarted by the banks. Like Bank of America (BAC), which is accused of stalling the HAMP program applications or denying applications at will. In the case of the United States vs. Bank of America, No. 2193, Complaint for Violations of The False Claims Act, employees claim they were told to lie to potential HAMP recipients about the status of the application and reject applicants for no real reason. If this turns out to be true, then the Treasury Department could have a valid reason to extend the program. Bank of America employees stated that if they didn’t meet their quotas for putting homes into foreclosure they were fired. They were instructed to stall on HAMP applications and then twice a month Bank of America went on a blitz and declined thousands of these same HAMP requests because the documents were 60 days old and considered "stale".
The Treasury department paid Bank of America millions in TARP incentive payments, but the bank had the highest number of cancelled HAMP modifications and the second highest amount of homeowners rejected. The BofA employees – UNDER OATH – say the bank only used the HAMP incentive money as a tool to squeeze the homeowners into foreclosure. So, here again, the Treasury is just throwing taxpayer money at programs that it isn’t able to monitor. Even the Special Inspector General hadn’t caught this ruse.
So, if the Treasury can’t keep track of this money and can’t trust the banks to properly administer the program, it should not extend it. Home prices are rising, foreclosure rates are declining. It’s time to close the chapter on HAMP.
This article was republished with permission from TheStreet.