HAMP for House-Flippers? Real Estate Speculators Can Access Loan Modifications
You would think that the Administration would try to master how to deliver relief to struggling borrowers who need the help before moving on to another sector of the housing industry. But you would be wrong. Instead, Bloomberg reports that the Administration will open up the failed HAMP program to real estate speculators who got caught with properties they couldn’t sell after the bubble popped and the market crashed:
The Obama administration will extend mortgage assistance for the first time to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble.
Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal.
The government’s need to protect neighborhoods from blight and renters from eviction by keeping the current owners in place is outweighing concern that taxpayers will end up bailing out real-estate investors. The program is being enlarged after less than 1 million borrowers modified loans through HAMP, compared with the administration’s stated goal in 2009 of helping 3 million to 4 million homeowners.
My first thought here is that Treasury wants to unload its HAMP money in any way possible to rebut critics and show metrics that their program succeeded. My second thought is that, for a group prone to scream about relief only for “responsible parties” and the dangers of moral hazard, bailing out speculators and house-flippers is about the worst thing you could do. It’s true that there’s an interest in reducing blight and unnecessary evictions. You can combat blight by stopping unnecessary and debilitating foreclosures. And I’m fine with trying to ensure occupied housing and reducing vacancies. We need to reduce inventories. But rushing to the aid of real estate speculators? Really? Why don’t we figure out how to actually get aid to borrowers who were ripped off by servicers first?
I personally think there’s been far more moral hazard in the Administration response to prop up the banks than anything that could emerge from helping homeowners, so I tend to discount that argument. But somewhere you have to draw a line, and house-flippers seems like a good place.
Fortunately, I think this HAMP off-shoot will be as successful at actually helping speculators as it has been at helping homeowners, so maybe nobody should worry about moral hazard so much.