- The objective has become to stretch things out
- Banks are happy to go along with this too
- What happens if America runs out of time?
Although HAMP has assisted many Americans directly (and indirectly too via pressure on the banks) the unfortunate reality is that it has failed in its promises to many more. Most of these have threshed around in the foreclosure mill for months while they waited for loan modifications, only to be eventually hung out to dry.
When the United States Treasury Department launched HAMP in March 2009, the backbone of the program included persuading home loan servicers to modify the terms of troubled mortgages so that borrowers could afford to service them, and avert foreclosure. At that time, President Barack Obama said that he hoped that HAMP would help up to four million American households successfully modify their home loans in the course of three years.
This still sounds like a good idea from the perspectives of both borrowers and their lenders. Millions of American households owe more than their houses are worth, and many of these are no longer able to make payments, after losing their jobs or suffering a contraction in disposable income. In California alone, 2.3 million families face negative equity. One would have thought that banks would be happy to avoid the high cost of so many foreclosures by agreeing modifications.
It seems the answer is no, at least in most cases. This far, just 420,000 mortgage HAMP-inspired modifications have become permanent, while many more hopefuls have been turned away. Is HAMP taking a back seat on this, or are the hurdles for banks too low – if indeed there are any?
According to a report issued by the Troubled Asset Relief Program issued in July 2010 “The number of trial and permanent modifications that have been cancelled substantially exceeds the number of homeowners helped. One continuing source of frustration is that the Treasury has rejected calls to announce publicly any goals or performance benchmarks for HAMP.”
How can it be possible for an apparently logical federal program like HAMP to fail so badly? The answer lies in the fact that it is concentrating on keeping its finger in the leaking dyke wall, as opposed to repairing the hole. The main strategy has been denial. Forestall foreclosures, keep banks solvent without further federal funding, encourage higher house prices to keep builders occupied and boost consumer spending. At all costs, avoid creating bad news.
The banks have appeared happy with the denial approach too. After all, going the modification route before foreclosing stretches things out from a few months to a year or more. Foreclosures are bad news for banks too, and delaying them is good for their balance sheets. What will happen when shadow inventories hit the American property markets? Follow the story at the website that lists foreclosure real estate – www.foreclosuredatabank.com.
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Written by Alex Rolim.
