The WSJ had a nice little piece last month on the failures of HAMP. I concur — we need to cut this program out immediately
Proposing cuts to housing programs has never been politically popular, so maybe it’s a sign of the times that Ohio’s Jim Jordan and other Republicans are floating a bill to terminate the Obama Administration’s Home Affordable Modification Program, or Hamp. Or maybe, just maybe, this latest waste of taxpayer money is so egregious that the bill’s sponsors figure even Democrats can get on board. Let us hope.
Hamp was launched in 2009 to reward mortgage servicers for modifying contracts and borrowers for staying current on their payments. The goal was to help three to four million homeowners avoid foreclosure. Yet two years later, the number of applications cancelled has exceeded those approved, and some homeowners have been forced into foreclosure while awaiting a decision.
Hamp was flawed from its inception. If the last few decades of public housing policy have taught anything, it’s that programs to keep people in homes they can’t afford is a bad idea—and, in any case, bureaucrats are terrible managers. Treasury administered Hamp but contracted day-to-day oversight to Fannie Mae and Freddie Mac. The launch was rushed and the rules for loan modifications were repeatedly changed.
One year into the program, more than one million borrowers had entered trial modifications, swamping mortgage servicers. Seventy-eight percent of borrowers were already in default before starting the trial, according to Treasury data released last week. Many loans weren’t viable from the beginning and wouldn’t benefit even from the low interest rates facilitated by the Federal Reserve.
The numbers bear that out. According to Treasury data, 792,529 trial and permanent Hamphome loan modifications have been cancelled, compared to 521,630 homeowners who have had their mortgages “permanently modified.” Applications for Hamp modifications are now slowing markedly. The Congressional Oversight Panel estimated last month that on current trendsHamp will prevent at most 700,000 to 800,000 foreclosures.
Meantime, private mortgage servicers—who can price risk more accurately—have outstrippedHamp. The Hope Now coalition estimates that last year non-Hamp modifications totaled about 1.2 million loans. That’s about double what Hamp has done over the same period. Treasury claims that Hamp redefault rates are less than those of the private sector, but that is hard to verify because borrowers who drop out of Hamp in the trial period aren’t counted in the redefault statistics.
The Obama Administration nonetheless keeps hawking Hamp, and last month Treasury’s Timothy Massad told Congress that “helping over 500,000 people enter into permanent modification, people who would otherwise be thrown out of their homes” are “dollars well spent.”Hamp is funded through the Troubled Asset Relief Program and has spent $840 million of the $29.9 billion allocated to the Making Home Affordable Program, most of which is for Hamp.
That’s not persuasive to Neil Barofsky, the special inspector general for Tarp, who last month noted Treasury’s “astonishing silence” and refusal to “provide an estimate, goal, or projection of the total number of permanent modifications it expects to complete and maintain.” It’s hard to know if money is “well spent” if you don’t know what defines success.
If you measure success by the housing market, Hamp has failed miserably. According to RealtyTrac, 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009 and 2.3 million in 2008. The bellwether Case-Shiller home price index is falling again. Hamp is one more artificial prop to a housing market that will recover faster if foreclosures are allowed to proceed more rapidly and the homes are resold. By all means give Hamp the hook.