naked capitalism

The Treasury Department seems to be a wits’ end on several front. The Wall Street Journal reported yesterday that Geithner said bad words to banking regulators to try to bring them to heel. A few weeks ago, Geithner also had a chat with bank executives about their failure to do much in the way of mortgage mods despite the Administration having offered them some bribes, um, incentives to do so. Turns out the incentives are light compared to what the banks make carrying on as before.

As a result, only 9% of of eligible borrowers have received mods under the new programs. That does not make for good PR, needless to say.

So the Treasury decided to publicize which banks have done the least on this front, presumably hoping that the bad press might induce them to do more. Wachovia (now Wells Fargo) and Bank of America are the laggards, but even the supposed best, JP Morgan, has done mods on only 20% of the eligible loans. This is wht the Japanese woudl call :”a height competition among peanuts,” looking for distinctions when everyone is operating at a pretty low level.

Even calling these changes “mods” is giving them more credit than they deserve. The banks first offer a “trial mod,” and because they can include payment catchups, they can result in HIGHER payments!

From the New York Times:

The Treasury Department said on Tuesday that only a small number of homeowners — 235,247, or 9 percent of those eligible — had been helped by the latest government program created to modify home loans and prevent foreclosures….

While 15 percent of eligible homeowners have been offered help through the mortgage modification program, the low rate of actual mortgage reductions has frustrated administration officials.

Yves here. I think that was poor drafting. Surely the Treasury can’t be happy with 15% either. Back to the article:

Under the $75 billion program, homeowners whose monthly mortgage payments are more than 31 percent of their gross income are eligible for modified loans, with interest rates as low as 2 percent.

Bank of America has modified only 4 percent of the eligible mortgages, and Wells Fargo has modified 6 percent.

Citimortgage, a unit of Citigroup, fared better at 15 percent, while JPMorgan Chase was among the most successful, modifying loans for 20 percent of eligible borrowers…..

John Taylor, president of the National Community Reinvestment Coalition, said the government should not depend on voluntarily compliance from banks.

“There are other modifications that Wells Fargo and Bank of America would argue that they’re making,” he said. “But maybe they’re making modifications that are not as deep or consistent with the guidelines.”

Michael Calhoun, president of the Center for Responsible Lending, was also skeptical that banks had enough incentive to comply with the program. The Treasury Department offers $1,000 payments to lenders for each modified loan and pays lenders part of the difference between borrowers’ old monthly payments and their new ones.

“For over three years, leaders have insisted they can handle this crisis on their own, but today’s report shows that the time for voluntary action is over,” Mr. Calhoun said in a statement.

Kathleen Day, a spokeswoman for the center, said: “There’s still a lot of market reasons why they wouldn’t do it. Some may not have the warm bodies to do it. They may feel overwhelmed.”

That would change, she said, if banks knew judges could modify mortgages in bankruptcy courts.

The problem is pretty simple. The banks have no shame, and the government has no leverage, or more accurately, isn’t willing to use the leverage it has.