Barry Ritzholtz: HAMP Prolonging The Agony

Some people disgust me and Mr. Ritzholtz is on the top of my list right now. 

Mr. Ritzholtz insists that the reason HAMP is not working is because homeowners can’t afford their homes.  He says it would be better to let the lenders foreclose and absorb the losses, and let the families get into “more affordable” rentals.  He says, in effect, HAMP is just prolonging the agony and if the process were just allowed to play out, the market would correct itself over time.  You can read his article here.

There’s just one big problem with this: affordability has nothing to do with the failure of HAMP. The failure of HAMP has more to do with a lack of oversight and a lack of  “teeth.” At its core, it remains a “voluntary” program that banks may or may not choose to be a part of. Even if they choose to participate, they are in no way obligated to modify anyone’s loan.  This point was made abundantly clear to one blogger by the executive of one bank: “We only have to offer modifications. We’re not obligated to actually do them.”

The simplest way to give HAMP teeth is to allow bankruptcy judges to modify loans on primary residences. If the banks knew that a judicial modification was a possibility, they’d step up the efforts to modify loans and actually do them instead of playing the games they get away with playing today.

Once again, just to be clear: it is NOT that people can’t afford their homes; they can’t afford the toxic, exotic, loans they were pretty much forced into due to Wall Street’s unregulated greed.

The way to fix this is to force modifications, whether through a cram-down provision in bankruptcy or though legislation that mandates modifications across the board.

It is time to protect Main Street instead of Wall Street.

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