HAMP Still Not Making The Grade: Geithner Refuses To Consider Alternatives

By almost every measure, the HAMP program continues to underperform in its effort to address the problem of mortgage foreclosures. Since its inception a year and half ago, only 340,000 homeowners have received permanent modifications and 436,000 have been dropped from the program. Last month alone, 155,000 homeowners were kicked out of trial modifications as opposed to only 30,000 who received new trial modifications. Accordingly, it appears the HAMP program is helping fewer and fewer homeowners as time goes on.

 

Meanwhile, three million foreclosure notices are expected to go out to homeowners this year alone, and of those, 1 million will result in foreclosures. This rate of foreclosures is expected to continue for the next couple of years, at least, which means than millions and millions of families will have lost their homes.

"Servicers have done a terrible job," admitted Treasury Secretary Timothy Geithner during his testimony before the Congressional Oversight Panel on June 22. This statement provoked a sharp response from Chairwoman Elizabeth Warren: "Is it time to rethink whether or not a mortgage foreclosure prevention program that is based on a group of servicers whom you describe as having done a ‘terrible job’ is a program that perhaps should be redesigned?"

Although he acknowledged HAMP’s shortcomings, Geithner continued to staunchly defend the program. He kept on insisting that it was never designed to help everybody and that the program basically gives people a "chance" at permanently modifying their loans, provided they qualify.

In report after report, Chairwoman Warren has been urging Treasury to re-think its current foreclosure prevention strategy. She continues to characterize the HAMP program as "too small and too slow." "It is — it’s as if we had a boat that’s taking on gallons of water, and they’re trying to bail it with a teaspoon," she told PBS reporter Judy Woodruff.

The problem that it seems no one wants to deal with is that in order to help the most amount of people, the banks are going to have to take some large losses. After all, along with Wall Street, the banks created this disaster. Why should a government program be limited to only providing help in a way that still allows servicers and lenders to profit?

There are those who will say that the true answer is to just let the market take care of itself. They say letting foreclosures continue, unmitigated, would force the banks to recognize their losses and allow housing prices to drop down to where they should be, given the excess supply and lack of demand. Further, proponents of this sort of "hands-off" approach claim, it would get people out of houses they can’t afford and into more affordable accommodations.

These folks have a point, and if it weren’t for the impact that massive foreclosures are having on the larger economy, and the impact on families, I would agree with them. The problem is too big to just let the market resolve it as the impact of doing so would completely devastate our economy and crush whatever fledgling recovery may be in progress.

Millions of families have already lost their homes, and millions more will lose them in the next number of years. This has far reaching consequences beyond just those families. It means that housing prices, far from reaching an equilibrium, will be unnaturally depressed. It means a continued oversupply of housing, which impacts the last bastion of decent paying blue collar jobs in America: construction. It means even more lost equity, which begets more and more foreclosures, and the cycle continues.

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