A Home Loan Named Desire
It’s official. The “save the drowning homeowner who got burned plan” aka the “Home Affordable Modification Program (HAMP)” is a Big Fat Dud.
A U.S. Congressional oversight panel reported this week that of 500,000 mortgages currently in the hopper for restructuring, only 2,000 (less than half a percent) have been permanently modified-a remarkable feat of failure only George W would envy.
The ten month old program offers lenders $1000 per year for up to three years if they modify a loan. Mortgage servicers make far more than that in late fees alone. The banks with these loans on their books must be laughing at the paltry sum in the wake of the tens of thousands of dollars they stand to make in foreclosure. Investor pools that hold mortgage securities and hide behind the servicers and banks would lose millions. In response, they slither away out of the public eye and simply ignore the Obama administration’s call to make homes “affordable.”
There is no legally binding, real financial incentive, or even official threat to participate, so why bother say lenders? Hence the U.S. “Making Home Affordable” plan is a miserable failure. It is all bark and no bite.
Why bother indeed? Lenders might step up because they want to help their fellow countrymen? Let’s just forget that. How about doing it for the sake of the housing market, the economy, the country? No thanks, lenders say.
We would have to come up with something more compelling than that to shake the snakes out from under the rocks. Perhaps some big buckeroos might do it. Short of that, real threats of withholding government aid from lending institutions might create sudden patriotic fervor. Or perhaps bank-loving policy makers should put their money where their mouth is-in the American people’s hands.
While the nation is spending billions on two wars it doesn’t want and trillions on the same folks that pulled the financial ground out from under them, $3000 to modify a mortgage seems like chump change to a lender. And folks as we know from the biggest scam ever to hit the American people-subprime mortgages and the CDO and CDS securities that hid them- banks are not chumps.
As hard as it may be to believe, the American government - the Yes We Can-Vote for Change government we elected into office one year and 26 days ago -has put the future of the American economy in the hands of the nation’s banks-yup, the same institutions that brought us to our knees. Like a nation of Blanche Dubois’, we are dependent on the kindness of strangers for our home loans, small business capital, ready credit, and job creation.
The HAMP program is not backed by any strings, nor is it mandated by any official agency, nor are there any penalties for noncompliance. So why is it even in operation? That is the $75 billion question….
Mr. President, we thought you were the rock in the cleft of the world we could hide in. Instead, we are forced, as Stanley Kowalski would say, to jump in with a school of sharks.
Just like Stanley, mortgage bankers can’t be trusted when left alone with a vulnerable Blanche. At-risk-homeowners can’t modify their loans to save their lives or homes. Companies like Wachovia (done in by crystal meth snorting underwriters-now absorbed by Wells Fargo), and Countrywide (underwater and absorbed by insolvent Bank of America -former CEO Lee Mozilla is under Federal investigation for fraud) are making lame and phony efforts to restructure the same bad loans they should never have been legally allowed to make in the first place.
These lenders were run like criminal organizations- no better than common gangsters preying on the vulnerable, the desperate, the indigent, the sick, the under-served and forgotten. Yet they were more dangerous than the Mafia of Sopranos fame, because this was a federally “sanctioned” home loan lending mafia type operation backed by those stalwart patriots Fannie and Freddie. One third of the American borrowing public (the amount of “subprime” mortgages in 2007) fell under their intoxicating spell!
Despite these sad truths and the fact that we know all this already- the same lenders, now using other names, are back at it again! Nobody (the federal gov that is) is watching them closely. Lenders have embarked on a clear strategy of “let me string these idiots along as long as I can and maybe the Feds will look the other way.” These bad banks have “lost” paperwork, hung up the phones, put customers on indefinite “hold,” ignored borrowers, lied to borrowers, and generally run bureaucratic rings around them in an ultimate goal of foreclosure and default.
The New York Times reported this week, “$75 Billion Federal Push to Stem Foreclosures Is Falling Short.” The U.S. Assistant Treasury Secretary for financial Institutions, Michael Barr states, “The banks are not doing a good enough job.” That just might be the understatement of the year. He continued, “Some of the firms ought to be embarrassed, some will be.” Embarrassed? Banks? If “shame” were an effective factor in banking, we would not be in this mess.
The shame falls squarely on the shoulders of the U.S. Treasury, the official supervisor of the Affordable Home program. Mr. Barr, and his taxpayer supported agency should be embarrassed into using the tools at its disposal to force lenders into submission. The free money the Federal Reserve and Treasury continue to give banks at taxpayer expense should have strings attached.
Embarrassment does not seem to motivate mortgage lenders. You could not have acted more shamefully than the defunct Wachovia or Countrywide. Money motivates these companies pure and simple, and clipping their wings to make more money does too. In theory, pouring money into lenders’ coffers was done so these same institutions would pour it back into the hands of the credit-starved public. That is the trouble with theories; they are only valid if they really work.
So what is taking the Federal Reserve, the Treasury Department, and both houses of Congress so long to play their hand? Must we k“iss the backside of banks forever? Isn’t there some point when reason and rational thinking takes over?
The increased number of at-risk-homeowners directly corresponds to unemployment. As jobs continue to disappear and incomes continue to shrink, the number of defaulting loans grows.
Tens of millions of Americans have lost their incomes and are struggling to pull themselves out of the hole these bucket shop lenders created. Defaults are no longer limited to credit-marred borrowers. The new wave of failing loans has reached formerly credit-worthy borrowers with traditional 30year fixed rate mortgages.
Millions of at-risk homeowners are out of money and out of time. Like Blanche, they find themselves in “desperate circumstances” with only a phantom Shep Huntliegh to rescue them.
What is Congress waiting for? Hopefully not the Feds and hopefully not lenders.
Philadelphia, the city of brotherly love, has lived up to its name recently. City officials have created a proactive mortgage modification program that forces lenders and borrowers to negotiate in a “conciliation conference.” Volunteer lawyers have succeeded in helping 70% of troubled homeowners with mortgage modifications.
What sets the program apart from the fluffy Fed program are the forced face-to-face foreclosure hearings. The New York Times reports that in Philadelphia, “Mortgage companies have no choice but to participate. They have to attend the conferences and negotiate in good faith or they cannot proceed with a sheriff’s sale.”
The success of the Philadelphians has inspired New York State lawmakers to follow suit. The state legislature is currently debating a bill to enforce compliance from lenders.
Elizabeth Warren, chairwoman of the TARP oversight committee, points out the Federal HAMP program is already outdated. The Harvard economist asserts the effort will do little “to tame the crisis” as the real problem is growing unemployment.
That brings us back to Stanley and Blanche which is essentially the story of the struggle between good and evil, might versus right. Stanley wrongly suspects that Blanche has swindled her sister and his wife Stella of her inheritance. Blanche explains that through “thousands of papers” and “epic fornications” her legacy was lost. Yet Stanley’s complete indifference to her suffering propels him to overpower her in a tragic climax. The rape of Blanche is her final destruction. She loses her sanity and her will to survive. In the end, she submits to total defeat as she poignantly beseeches her captor, “I have always depended on the kindness of strangers.”
Well, so have we, the American home-owning public. So have we.
