Obama Administration Must Act to Curb Bad Foreclosure, Housing Price News
The regulators said one reason for the increase in foreclosures is that banks have "exhausted" options for keeping many delinquent borrowers in their homes through programs such as loan modifications.
Newly initiated foreclosures increased to 382,000 in the third quarter, a 31.2 percent jump over the previous quarter and a 3.7 percent rise from a year ago, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in their quarterly mortgage report....
The report, which covers 33 million loans serviced by national banks and federally regulated thrifts, also shows a sharp drop in the amount of loan modifications processed through the Home Affordable Modification Program (HAMP), the Obama administration's leading foreclosure prevention effort.
HAMP loan modifications fell by almost 46 percent in the third quarter, according to the report.
The regulators from the Comptroller and Thrift Supervision offices need to have a word with Treasury about possibly getting around to using all the Home Affordable Modification Program funds that have not been spent on modifications.
The Obama administration launched its Home Affordable Modification Program (HAMP) in 2009, committing up to $75 billion to rescuing homeowners struggling under the weight of their mortgages. Now, however, it appears the Obama administration may spend just $4 billion on its flagship effort.
The program offers financial incentives to coax mortgage servicers into modifying loans held by homeowners on the verge of default. It also provides financial incentives to borrowers to urge them to remain current on their mortgage payments.....
The Treasury has so far made incentive payments of less than $800 million in connection to HAMP. “We always expected the money would not be paid out at that high a rate,” said Tim Massad, Treasury’s acting assistant secretary for financial stability. He noted that payments are only made for successful permanent loan modifications.
Better yet, given the fact that HAMP has proven to be little more than a scam for the banks (as very well-documented over the past year by David Dayen), replace HAMP with a program that works or figure out how to turn HAMP around.
The combination of the increase in foreclosures, increasing evidence of widespread foreclosure fraud, and the fact that housing values are going to continue to drop--putting more and more homeowners underwater on their mortgages demands action from the administration, action that is long overdue. It's not just a handful of DFH bloggers saying so: 18 Dem Senators have written to Treasury Sec. Geithner to express just how fed up they are with the HAMP program, and to demand changes.
Here are the steps that they want Treasury to take immediately. Importantly, Treasury would not need legislation to take any of these steps; they could implement all of it without having to go through Congress.
1) Actually enforce the program. There have been no sanctions for any servicer who violates HAMP. You cannot expect the servicers to correct their mistakes if they have no good reason to do so.
2) Create an Office of the Homeowner Advocate. This is something Al Franken’s been working on for some time. It would create a legitimate appeals process for HAMP, with an independent advocate who can mediate disputes and take complaints. It’s no different from having a consumer advocate at CFPB watching over the banks.
3) Automatic conversion. This is very simple: “If a homeowner successfully completes a trial modification, they should be automatically extended a permanent modification.” Treasury could just mandate that. It would end this horror of people waiting a year or more to hear about their modifications, would cancel red tape, and would add some much-needed fairness to the system.
4) Revise eligibility standards: The Senators want unemployment insurance included in the income test when determining eligibility. They also want widows and surviving children, who may not be on the mortgage note but who stand to inherit the mortgage to be able to get a modification.
5) More transparency: Homeowners should be able to see all the documents surrounding their modification, and the denial claims made.
6) Net Present Value: Treasury has come up with this Net Present Value test to determine eligibility for a modification, but has never made it public. They promise to release it by February 2011, but the Senators want it out in the public now, so homeowners can see why under the formula they have been denied modifications.
None of these would require any Congressional action, but the Senators make clear that Treasury hasn’t asked them to take any action to improve the program, either. They cite a recent meeting between Tim Geithner and homeowner advocates, where Geithner said “there are legislative guidelines that can hinder [Treasury] on doing anything.” The Senators don’t buy it, and ask for legislative suggestions from the Treasury Secretary.
The chances of Geithner actually doing any of this seem increasingly slim. As for legislative solutions, these Senators might give up on HAMP entirely and start looking at the past, toward the New Deal-like Home Owners’ Loan Corporation, or HOLC. That would mean doing something that the banks, and Geithner, have been refusing to consider--cramdown to reduce the principle on mortgages to make then fall into line with actual property values. Barring that, expect to see more and more people just walking away from their houses.