The Congressional Oversight Panel has issued another typically detailed report, this one focusing on the Administration’s widely criticized mortgage mod program, HAMP. HAMP is so widely recognized as being a failed program that when a group of bloggers met with Treasury officials last August, even Timothy Geithner didn’t try to pretend the program worked very well. The defense offered was that it “succeeded” by flattening what would have been a spike in foreclosures by getting some people into trial mods that failed and delaying the inevitable for a few months. Of course, that view conveniently omits the fact that servicers told borrowers that were current to quit paying so they could qualify for HAMP, plus the fact that the borrowers that did not get “permanent” mods also were assessed missed payments and late fees.
But the focus on HAMP has been mostly about how badly the program worked operationally, and less on the crappy design of the misleadingly-labeled “permanent” mods. Only in the US could a kick the can down the road strategy be branded as “permanent”. The HAMP mods are five year payment reductions. They don’t reduce principal, when studies and the experience of distressed investor Wilbur Ross have found that meaningful principal mods are far more successful than mere payment reduction plans. By contrast, HAMP leaves 95% of borrower in a worse negative equity position than before.
Worse, a formula in the HAMP program allowed banks to focus the mod program on the high negative equity homes. These were the ones the banks with large second mortgage portfolios were least likely to foreclose upon, since in those cases, the second lien would clearly be wiped out. Admittedly, they would also be the ones where a mod is a bigger win for the investor. Nevertheless,one has to wonder how much HAMP was designed with the “save bank equity by shoring up second mortgages that should be written off” objective in mind, versus its stated aims, particularly in light of the level of second liens versus bank Tier One capital:
Bank of America 83%
JP Morgan 78%
Citigroup 41%
Wells 116%
The facts presented in the latest COP report are far uglier than they might appear on a superficial reading. The first year default rate is 21%, if you can believe the Treasury figures (the COP report notes that Treasury lacks “complete or valid” information on 13% of its permanent mods).
Not bad, you might say, in contrast to other factoids about mod programs, where six month redefault rates have been reported to range from 20% to 40%. But many of those so-called mod programs are anything but. They typically include service payment catchup plans (a hoop servicers in the past have forced borrowers to go through before even considering them for a mod) which often result in borrowers facing <strong>higher monthly payments. HAMP should have done much better by virtue of putting borrowers through a trial mod, plus offering deeper payment reductions than typical private mods. How much better is an open question, but a 21% first year redefault rate says the program will fall far short of Treasury’s goal that the program would show only 40% defaults over the five year “permanent” mod time frame.
The report is chock-full of troubling information. For instance:
The Congressional Budget Office (CBO) last month projected that Treasury will spend only $12 billion on all TARP housing programs, including HAMP and the Hardest Hit Fund, out of the $45.6 billion in TARP funds allocated for those programs….
Treasury has declined to state publicly any metrics or benchmarks by which HAMP should be judged, a fact that has frustrated Congress and TARP oversight bodies, and has made clear to the Panel that it has no other unarticulated goals for HAMP
The COP report just makes clear what we already knew, that HAMP was window-dressing. Per Adam Levitin, as part of an if-anything more critical post than ours:
Ultimately, the message to take away from HAMP is that the Obama administration just isn’t serious about helping homeowners. The plight of distressed homeowners’ is subsidiary to protecting the banks from having to take serious write-downs. There’s plenty to say about the politics of that decision, but from an economics perspective, I just think it’s short-sighted. The economy will not see a robust recovery until there is serious consumer deleveraging and a stabilization of the housing market. Those two problems go hand in hand, given that mortgage debt is the biggest chunk of consumer leverage. And there really isn’t any way to deleverage consumers without there being losses for the financial sector.
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Wrong metaphor. Train wrecks are accidents. HAMP was on purpose.
“The economy will not see a robust recovery until there is serious consumer deleveraging and a stabilization of the housing market. Those two problems go hand in hand, given that mortgage debt is the biggest chunk of consumer leverage. And there really isn’t any way to deleverage consumers without there being losses for the financial sector.” Adam Levitin
Systemic addiction to ‘growth’ is the problem (one of them anyway), not the solution. Indeed, it is this as yet unquestioned underpinning which most needs light shed on it. Why is something as fundamental as planetary carrying capacity irrelevant to orthodox economics? Why is the nature of money creation discussed only at the fringes? Why shouldn’t resources and environmental health be economics’ focal point? Why should monetary profits be society’s final arbiter? Has the invisible hand ever been proven to work as theory posits?
Until questions such as these are addressed, unbiasedly (as far as that goes), transparently, and right around the globe, humanity is just digging itself a deeper grave.
Kick the can, IS the ENTIRE and ONLY focus the current administration has. Extend, Pretend and Bailout are the only ideas team Obama has. That is why the fraud and looting WILL continue until it cannot and why the SPENDING and PRINTING will continue until a currency crisis occurs and not a second before.
No-one is prepared to throw Wall Street under a bus by forcing them and their minions to obey the rule of law. That is why the economic collapse is ongoing and will continue until we stop somewhere between Argentina and Zimbabwe.
If my neighbor gets a great principal reduction, why can’t I get one too? Principal reductions for everyone!
Question: how much reduction. 10% 20% 50%?
“If my neighbor gets a great principal reduction, why can’t I get one too? Principal reductions for everyone!”
And the same goes for heart bypasses and food stamps?
He/she gets one and I don’t because he/she needs it and I don’t. And if I have enough sense to realize that MY welfare is to some extent dependent on my neighbors’ then I should be OK with this.
And if I have enough sense to realize that MY welfare is to some extent dependent on my neighbors’ then I should be OK with this. In a Nutshell
Excellent attitude!
But for those who insist on justice (and who may get more of it than they desire if they neglect mercy), we can all be compensated for the predations of the government backed counterfeiting cartel by a bailout of the entire population, borrowers and savers alike, with new debt and interest free legal tender fiat.
The system is broke, they’re robbing you blind and you don’t even see it.
Yes the top is stealing too – that’s been discussed before.
How do you konw when someone ‘needs’ a loan mod? What willthey use that extra couple of hundred bucks a month for? x-mas gifts? HBO cable? A smart phone?
These people are mostly scammers.
I have family members very close to me who got a loan mod. Of course, they’ve lived their entire life hand to mouth – blew threw injury settlemetn money, blew through 20 yeras of $4,000 tax refunds; pay hundreds of dollars in overdraft fees a year, don’t pay any credit cards, always late on the mortgage and pay over the phone everytime encouraging extra charges..
yet they have cable tv (I don’t); a DVR (I don’t); 2 cars (I only have one for my family); new clothes; shopping sprees regularly at wal-mart; flat screen tvs; etc.
The concept of belt-tightening or austrity is foreign to them. These are family member of mine.
The difference is taht I have savings in teh bank and I live austere; they live like there is no tomorrow and they spend it all and then come back begging for me.
Wow, some people are so so so naive.
Did I mention I’m a bankruptcy attorney?
Did I mention the 10s of thousand in crdit card debt each and every one of my clients have?
Flat screen tv’s; smart phones; cell phone family plans of hundreds a dollar a month; cable television; DVD movie collections; car payments of $400 a month…..and they all come in “I NEED A LOAN MOD I CAN’T AFFORD MY MORTGAGE!!!!” Yeah bubby, shut off the cable, get teh prepaid cell phone and get a cheaper car..that’ll save you $500 bucks a month…..but no, no austerity whatsoever.
I suppose there truly are some people who have got it hard…
but generally it’s people who did really well in the 2000’s and spent EVERY DAMN PENNY OF IT and now that the good times are over, all they have left is debt.
This is typical below median income people too.
America needs a little forced belt tightening – it’s good for the soul.
America needs a little forced belt tightening – it’s good for the soul. eagerly beaverly
I imagine it sharpens the aim too.
Yes, I hear you but I don’t blame the poor even for their moral degeneration. They have been dispossessed by a system they did not set up, a government backed counterfeiting cartel.
And you live an austere life but why should that even be necessary for a person of your education?
Let’s have an honest money and banking system and then the poor will indeed have no excuse. As for now, I suggest you just write it off to “A fish rots from the head down.”
Ah…
are you seriously trying to compare home ownership with the right to surgery or even the basic right to eat?
Why should ‘owners’ get a break with a loan mod but renters have to pay full price? Why is that fair?
And food stamps? A couple of hundred bucks a month? I know plenty of people on food stamps – and let me tell you – many of them have big screen tv’s, cable television, their kids have nice sneakers and new clothes….In fact I do their bankrupticies and I know exactly what they get….they get tax refunds from the feds in the amount of $4,000 or $5,000; they get loan mods, food stamps…they get everything but a little austerity. That’s what they get. I speak from experience here mofo, I see it every mofo day.
Riiiight…and they drive Caddies and fly in private jets.
I call BS. This is a huge myth and I dare you to show any proof. I know lots of people on “food stamps”, and they all sorely need it. Without them they and their kids would starve.
One thing that I *can* prove is that plenty of billionaires and profitable corporations got lots of government money. And the billionaires are about to get even more money. They certainly have big Plasma screens and fly private jets.
My sister is on food stamps and medicaid for her children.
They have two large gas guzzling cars.
They have a cable/internet/landline bill of over $200 a month
They spend $150 on their cell phones.
They’re currently squatting in a foreclosure so they have no rent, no mortgage, no monthly housing cost.
Their two children have not one, but two Nintendo DS; they have nintendo wii, thousands of dollars in new toys.
I’ve seen her credit score and it’s in the upper 400’s.
They eat fast food four to five times per week as a family.
They’re poor so they should live like it.
And they are people that took a hit in the real estate depression because he worked the construction trades.
I understand they had a reduction in income – so cut back.
They don’t know the meaning of austerity if it whacked them in teh face.
They have no housing costs b/c they squat in a foreclosure. I asked ‘how much money have you saved in the process of living in a foreclosure’ – she said none this month……because, in her own word, it’s ‘x-mas’.
I can be judgmental because it’s my sister and it’s family, but i’m far less judgmental with my clients. Most of whom have jobs, nicer tvs and much much much nicer cars than I drive. and I’m an attorney.
IT’s a good thing to tighten the belt and live austere and be prudent.
Yet the government seems to allow the rich to keep their and at the same time subsidizes the poor to live a lifestyle that exceeds mine in a number of ways…
and it’s all coming out of my middle class pocket and i’m damn sick of it.
Did I mention my sister and brother-in-law each smoke a pack of cigs a day? In my county cigs average $7 a pack.
eb,
So you have spendthrift relatives. That isn’t proof. Those are mere anecdotes.
There is plenty of evidence that the people who can’t pay their mortgages fall largely into three camps:
1. Job loss or severe cutback in hours/pay due to crappy economy
2. Victims of servicer abuses, this is a huge issue, and if your servicer applies impermissible fees and compounds them, you pretty much can’t get it fixed.
3. People filing bankruptcy to restructure their debts; the servicer (again impermissibly) tries to break the BK stay; the homeowners’ attorney, if he does not know BK law, is typically presented with an arrangement by the bank that screws the homeowner.
Guess what? The profligates you like to deride took subprime teaser loans, for the most part. Those resets took place in 2007 and 2008. Those people have for the most part already lost their home.
I’m really not interested in long form statements of bias in lieu of facts. Show me some data, I’ll listen. But all I get from you is anger, jealousy, and no solid support for your prejudices.
Purience thrills conservatives, it’s easier to get off when other areas of the brain aren’t engaged. I wonder why the po’folk never get much traction if they were to say “hey no fair” we should be entitled to massive bonuses and super-normal compensations, after all – what of the people who actually have to work each day! April, 2009, cramdown sends the protectors of wealth into an accusatory frenzy. “Only the royals should be able to reduce the balances on their yachts, jets, 2nd 3rd or 4th vacation homes, not the poor who are rightfully losing their homes due to their immorality and foolishness!” The full pell mell of social and economic upheavel, and none other then MSNBC allows a the shock jock style crucifiction of those who had been drawn around the bend, sometimes sacrificed 100Ks or more of their savings and poised with financial ruin, told that they were trying to “get away with something.”
See my post below about spending 80% of your income on debt servicing.
The amount of wealth the upper classes is irrelevant to the middle class gorging on debt this past decade.
The middle class stuck its head into the trough of debt and never once looked up at what was happening around them. The HAMP dti numbers aren’t poor people – they’re your neighbors, your aunt who spends too much, your co-worker who took the vacation to Hawaii in 2006 after a refinance, it’s the guy who drives an Escalade in the parking lot of the mall.
The repeated comments about jets, yachts and vacation homes is totally irrelevant to the point I’m trying to make.
In fact, it reeks of jealousy and covetousness. Maybe you should keep your hands in your own pocket for once and get your own finances in order.
The middle class did itself in, collectively, getting to crazy debt…
let’s get out own house in order here BEFORE we start picking the pockets of the wealthy thinking it’s going to solve all our problems.
Kick the can, IS the ENTIRE and ONLY focus the current administration has.
Why should they be any different than the previous ten administrations?
“Kick the can plus selective bailouts (pick me!!)” is the will of the majority of the citizens.
“The defense offered was that it “succeeded” by flattening what would have been a spike in foreclosures by getting some people into trial mods that failed and delaying the inevitable for a few months. ”
I remember this quote from your post about the meeting. It still makes me mad every time I think about it. I envisage a hospital claiming that their treatment program for a disease epidemic was a success because, while no patients’ lives were actually saved, it was able to keep enough of them on life support for long enough (albeit in constant terrible pain) that their eventual deaths were spread out over a long time period rather than all at the same time – thus avoiding unseasonal load on the system of funeral homes, graveyards and crematoria.
And they wonder why terms like ‘vampire’ get tossed around.
Yves,
Im not trying to anger you or piss you off but take a look at the dti ratios of permanent hamp loans. Calculated Risk has posts on it every so often. These people were up to their eyeballs in debt. It’ll blow your mind. Think of your own situation. Are you spending 75% of your income servicing debt? If your neighbor decided to gorge himself on credit card and car note debt, and then defaulted on his mortgage, would you want him to have a principal reduction while you lived prudently and within your means?
Sure there are people who genuinely have servicer errors (im working on two cases right now), and those who lost their job……but the rest, the hamp permanent mods who actually have jobs. They lived on the edge financially expecting boomtimes to last forever, and now you and I are paying for their imprudent behavior.
I know a defense contractor who works about 35 hours a week, goes to a few meetings, writes emails, has each weekend off, sometimes afternoons to be with his wife and family. He earns over 150K a year, can move to different positions or even different geographic locations because of the special priviledges and entitlements that came with access and a managment postion. Naturally, he has no trouble paying his mortgage or avoiding being up “to his gourd in debt”. Like Sheila Bair, a Jumbo loan isn’t a “risk” it’s a convenience. He has great health benefits for himself and his family, this means if he breaks his leg, gets a flat tire, and has a major appliance break – all at once – he doesn’t need to use his Capital One Card to inflict usurious wounds upon himself to take care of these problems, the cash is there for such triffling inconveniences. Our American “hero” has access to counsel, medical specialists, 3 weeks paid vacation, fully vested, trappings, pension, etc game room with pool table, all the game boxes for the kids, access to the highest quality drugs legal, and or illegal. Now that’s living with prudence!
Yeah EB,
Those permanent hamp mods people that actually have jobs, let’s focus on their imprudent behavior. They game the system for peanuts, why not focus the anger at the real wankers. The bankster squids that scam the system for billions. The uber-parasites are the problem, not the unter.
Two wrongs don’t make a right.
I’ve already said that the banksters stole billions. but you can’t dismiss the scamming on the lower end of the scale.
Together we are a nation of scammers.
“Debt-to-income ratios
If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 44.9% – the same as last month. And the back end DTI1 was an astounding 79.9%.
This means that for the median borrower, about 80% of the borrower’s income went to servicing debt. And the median is 63.5% after the modification”
http://www.calculatedriskblog.com/2010/09/hamp-data-for-august.html
How do you get to a back end ratio of 79.9%?
Think about that for a second. What does it mean to spend 80% of your income on debt.
Let’s say that you make $5,000 a month. Figure roughly 40% for a mortgage = $2,000. Car note of $400 per month. Home equity loan of $500 per month. Credit card minimum payments of $800 per month. Student loan payments of $300 per month. Total debt payments are $4,000 out of a $5,000 income.
DO YOU live like this? DO YOU know anyone that lives like this?
So follow through on this logically…..your neighbor lives in a $2,000 a month home, took out a home equity loan, has a brand new $400 per month car not, has a quality education with student loans of $300 per month, and literally stuck his head into the trough and now he has a minimum payment on his credit cards of $800.00.
Somebody lived beyond their means.
Sure, you can say, what if the person earned $3,000 a month rather than $5,000 a month….Well, the person earning $3,000 a month and spending $2,400 of it has no business owning a home and living his attendant lifestyle, at least not in any major metro area if he makes $36,000 a year.
Loan mods, principal reductions – these aren’t the answer.
The answer is to foreclose, as quickly as possible, and sell the homes to the prudent who have the following: good credit – stable income – large down payment.
Principal modifications is no different than bailing out the banks, it’s bailing out the imprudent homeowners.
The contractor who works 35 hours a week and earns $150,000 is an entirely different issue to address at a different time.
I hope borrowers don’t seek the services of an bk attorney who posts Ayn Rand-lite on a financial blog. (unethical and/or stupid)
I’ve very busy and I get a lot of referrals.
I sympathize with the debtors but I also tell it like it is.
They know they got themselves into a hole.
Only a handful of them go around blaming the banks, or the credit card companies or the “government backed counterfeiting cartel which cheats savers and drives borrowers into excessive debt”.
Most know exactly where the blame resides and they know exactly how to fix it.
They aren’t picking other people’s pockets and counting other people’s money which seems to be a popular past time of the posters here.
But I love blog overall; great intellectual and in-depth discussion and analysis of many relevant issues that I see in my practice every day, albeit with a left slant, but I can look past that.
You’re not an attorney, tell it like it is.
Ever forge any signatures? How much coke are you snorting this evening? etc
Loan mods, principal reductions – these aren’t the answer.
The answer is to foreclose, as quickly as possible, and sell the homes to the prudent who have the following: good credit – stable income – large down payment. eagerly beaverly
Sounds fair and it would also wreck bank capital which also sounds fair.
But why not just bailout the entire population, savers as well as borrowers? It would even fix the banks in nominal terms (not that they deserve to be fixed) and also state budgets.
Deflation is a bitch. Why must it be endured when it is only fiat?
Aesop’s fable of the ant and the grasshopper is true even today. The pruent who work and save all summer survive the winter.
The homeowners who bought (actually those who chose to rent and not participate in the bubble), and saved, and spend far less than they earned, will be rewarded, and are being rewarded with affordable homes today; while the imprudent who spent all their money during the boom years and gorged on debt are losing their homes.
Median 80% dti ratios for thr employed speaks for itself. The contractors example below is why he survives the winter and his peers are not.
Nobody deserves 60,000 trucks or fancy houses when a billion people around the world live in grinding poverty.
Nobody deserves 60,000 trucks or fancy houses when a billion people around the world live in grinding poverty. eagerly beaverly
An odd statement. People deserve what they obtain honestly. There is a lot of government backed theft that muddies the water, however.
As for the people in grinding poverty, I suspect there would not be so many if we had an honest money system.
Wealth is a dynamic thing. It grows best under honesty and liberty. Restricting liberty does not compensate for dishonesty, it just makes the wealth destruction greater.
Aesop’s fable of the ant and the grasshopper is true even today.
Did the Greeks have government backed fractional reserve lending (counterfeiting) in those days?
The pruent who work and save all summer survive the winter.
Prudence is a virtue but there is justice to consider too. The innocent who loses his job due to deflation may not be able to afford a foreclosed home.
The homeowners who bought (actually those who chose to rent and not participate in the bubble),
I concede their patience and wisdom but many were misled by the Fed and others.
and saved, and spend far less than they earned, will be rewarded,
Perhaps by losing their jobs.
and are being rewarded with affordable homes today; while the imprudent who spent all their money during the boom years and gorged on debt are losing their homes.
Yes, that sounds just except you neglect the moral consequences of a government backed counterfeiting cartel which cheats savers and drives borrowers into excessive debt.
Debtors have to take some responsibility for what happened. The wealthy didn’t amass 40% of the country’s wealth by force, or through the barrel of a gun. They did it with a pen.
The average American saw the flat screen TV and said “I want this today” and bought it on credit, thereby buying the transnational bank richer and the transnational manufacturer richer.
Then they saw a house that was a bit beyond their reach and they said “I’ll buy this house, and suck it up and pay the mortgage for a few years and then flip it for more money and buy an even bigger house.”
Then they saw a new car and said WOW, I need to spend XX,XXX on a new car….with a 72 month (or 84?) month loan…and
lather, rinse repeat unless the average middle class folk was indebted up to their eyeballs.
Back in the days second mortgages were shameful, it was like hocking the house; today second mortgages are ‘smart’ and it s way to ‘liberate equity’.
The middle class sold themselves out in an orgy of over consumption.
Now the middle class is crying because the good times are over and all that remains is the debt.
I live in a fairly affluent area; and I regularly see what people earn and how they live, and the disconnect is ridiculous. The mania of the 1990’s and 2000’s was conspicuous overconsumption and it made the elites and PTB wealthy wealthy people.
You have to admit this, you MUST admit this truth before you can even discuss how to redistribute from the elites. Because if you give it back to the same profligate spenders who will again waste it and return it to the hands of the elite powers that be.
Address issues of easy credit, reward savers, employ consumption taxes to prevent people spending their money wastefully, that’s how you prevent the middle class from willfully giving their money to the elite.
You have to admit this, you MUST admit this truth before you can even discuss how to redistribute from the elites. Because if you give it back to the same profligate spenders who will again waste it and return it to the hands of the elite powers that be. eagerly beaverly
True, excellent point. I would combine a (one-time only) bailout of the entire population (including savers) with an abolition of fractional reserve lending (credit creation) followed (after the debt cleared) with fundamental reform in money creation including separate government and private money supplies.
In fact, if fractional reserve lending was abolished, the bailout would have to be huge to prevent massive deflation. The debtors would be bailed out, the savers would be compensated for years of suppressed interest rates, the banks would be fixed in nominal terms and wealth disparity would be reduced.
I can’t imagine who should be unhappy with that.
PS the greeks didn’t have fiat monetary systems – they had slaves do all the work for them.
I am a building contractor. My wife grosses around 25000 a year. Last year,my business slowed considerably. This forced time off was troubling, but not devastating. My business has no debt, and the only household debt we have is our mortgage. We drive twelve year old autos and are proud of it. We live in a small 1600sf. house of which we rent half out to a student. We made all these adjustments and feel we live richly. As my business has started to pick up again, we save every penny I make and have more in savings (not in the bank) than we’ve ever had. My house has dropped in value a little, but we arent underwater yet.
Many of my colleagues have not fared so well. Their businesses are failing because they had to have brand new equipment and 60000 dollar trucks. They built giant houses for themselves and then leveraged the hell out of them to buy boats and motorhomes and all the trappings. One fellow I know filed for bankruptcy on 900,000 dollars debt and is currently squatting in his mansion for over a year now.
None of this bothers me to much.
The fact that the servicers are sticking it to the investors and to many hardworking folks who didnt pig out on debt and have simply lost their jobs does bother me.
I live for the day I pay off my mortgage and never have to work with the banks again. Pull your money out of the bank and keep it at home or in a credit union. Hurt em however you can.
Bloomberg has an article on Canadians being more indebted than Americans. (i don’t know the policy here of posting links – easy to find on bloomberg)
My favorite quote from the article:
“Our parents were more inclined to pay off that mortgage as soon as possible, and some Canadians are not as inclined to do that now,” Flaherty told reporters yesterday. “I encourage them to do it.”
and “Canada’s top economic officials yesterday urged households to be wary of taking on too much debt after data showed the indebtedness of Canadians surpassed U.S. levels for the first time in 12 years.”
Canadians are like pigs with their heads stuck in the trough of debt; feasting away, feasting away, thinking that making themselves fat is good – but in fact, now they’re just a fatter pig who is going to make their owner more money when it’s time to go to market.
How long before the middle class Canadians look at their owners and collectively say “you got rich off me getting fat and now I want to take it all back so I can get fatter.”
Canadians are like pigs with their heads stuck in the trough of debt; feasting away, feasting away, thinking that making themselves fat is good – but in fact, now they’re just a fatter pig who is going to make their owner more money when it’s time to go to market. eagerly beaverly
The sad truth is that if none of them could borrow “money-from-thin-air” (credit) then none of them would need to. It is truly a “tragedy of the commons” situation.