When I summarized the House Oversight Committee hearings on TARP and foreclosures, I basically said that Democrats were the ones talking about foreclosures, for the most part. But I missed earlier in the hearing when Rep. Jim Jordan (R-OH) of the Republican Study Committee asked SIGTARP Neil Barofsky point-blank whether HAMP should be repealed. Barofsky said he preferred revamping to repeal, but he knows that Treasury has lost the ability to make tweaks to programs under TARP when TARP essentially expired back in October.
In the wake of this hearing, Jordan and two other House Republicans – Patrick McHenry (R-NC) and Oversight Committee Chair Darrell Issa (R-CA) – introduced a bill to repeal HAMP and to return money unobligated under the program to the federal Treasury. The fairly simple bill states the facts of the failed HAMP program – how more people have been rejected for modifications than accepted, how homeowners have been forced into foreclosure and had their financial situations made worse by the program – and then simply terminates the authority to provide any new assistance under the act (homeowners currently in trial modification could continue). The servicer contracts would be terminated and the money used for debt reduction.
Jordan, in a statement, said that “HAMP is a colossal failure… In many cases, it has hurt the very people it promised to help. It’s one more example of why government interference in the private sector doesn’t work and that’s why it should be repealed.”
It’s incredible to see the ease with which Republicans have seized the mantle of consumer protection in this case, and fit it into their story of opposing government intervention. There was a progressive solution to the housing crisis, one that created virtuous circles to help lift homeowners out of the crushing burdens of mortgage debt. It was what helped save the economy under the New Deal. That option was never taken. In a great report synthesizing much of what we know about HAMP, Pro Publica explains how the Treasury Department plan had nothing to do with progressive governance or even helping homeowners. In fact, it reflected an unwise partnership with big banks, who hold all the discretion on whether to modify.
Despite a dismal showing for the program, rising complaints from homeowners, and repeated threats from officials, the government has levied no penalties against even the most error-prone banks and mortgage servicers. In fact, despite issuing public warnings for more than a year about imposing penalties, the Treasury Department told ProPublica this week they don’t even have the power to punish servicers for wrongfully denying help to homeowners. Instead of toughening the program, Treasury has actually loosened it in the face of industry lobbying […]
The program rests on contracts that Treasury drafted and banks signed onto. To participate in the program and receive potentially billions in government incentives, banks and mortgage servicers agreed to offer homeowners modifications under guidelines subsequently drawn up by the government. In exchange, they would receive $1,000 for a completed modification and up to $4,000 if the loan continued to perform.
The contracts say Treasury can withhold or claw back incentive payments to servicers when they violate the contract. Members of Congress and homeowner advocates have long pushed Treasury to issue such penalties. There have also been calls within Treasury itself.
Around the same time that Barr and other officials were making public threats, Treasury staffers were looking at reports showing that some banks were modifying virtually no loans. Frustrated, they called at an internal meeting for withholding payments to the worst offenders or imposing fines, according to a person familiar with those discussions. But the staffers were walked back by Treasury lawyers, who said the government was only party to a commercial contract with servicers and not acting as their regulator.
Despite Treasury officials appearing before Congress and elsewhere warning of potential penalties, the department told ProPublica after months of questioning that its hands are tied. Treasury now says it has a very narrow authority to withhold incentives under the contracts. Only in cases where the servicer incorrectly granted a modification and claimed a payment can Treasury withhold or claw back a payment as a punishment.
That interpretation of the contracts means that if a homeowner was wrongfully denied help through the program, there is no possible financial penalty.
Treasury deliberately interpreted the servicer contracts in such a way that tied their own hands and made them impotent in the face of whatever the servicers wanted to do to their customers. Crazily, they refuse to sanction servicers because they fear they would drop out of the program – which keeps a program going that fails homeowners. And that’s why servicers don’t tell many borrowers they qualify for HAMP, or use incorrect Net Present Value tests to determine eligibility, or tell borrowers to miss a payment to become eligible (not true), or lose paperwork, or drag out trial mods to increase unpaid principal balance, or all the other tricks they do. There’s no penalty for any of this. Treasury doesn’t even have a written policy for sanctions. Far from fixing the problems, complaints to a national hotline set up by Treasury have increased over time.
You will probably hear that ending HAMP prematurely would leave homeowners with no lifeline when they’re in trouble. Well, homeowners aren’t really turning to HAMP anymore for that lifeline. New trial modifications in HAMP have gradually declined from month to month, and homeowners are increasingly looking to other options. Word of mouth has wound down HAMP as much as anything else. Treasury has spent less than $1 billion on HAMP in particular, and expects to spend only $4 billion by the close of the program. So the “savings” to the budget is a little over $3 billion.
My preference would be for that other $35-40 billion allocated under HAMP to go toward something that works. Treasury would probably make something up and say their hands are tied as well, but they have in fact used HAMP money for a host of other programs, including the Hardest Hit Fund and a refinancing program. If I ruled the world, I would close HAMP and put the money into mandatory mediation programs like NACA, with the servicers taken out of the decision-making equation for modifications. Issa, Jordan and McHenry just want to pull out of any government intervention. That’s irresponsible with foreclosure rates continuing to rise.
But what is infuriating is that their logic is practically unassailable at this point. And this is why HAMP was so damaging. The government ruined its own brand with a program that hurt the people it was meant to help. This is why I’ve said for almost a year that HAMP gravely hurt liberalism. I cannot argue with Issa and Jordan and McHenry when they say that HAMP has to go.