Treasuary Response to HAMP Problems etc.

[davephx]

Treasuary Response to HAMP Problems etc.
10/16/2009 article The American Prospect highlights

On HAMP - the program's standards are such that, when it works, it works: Participants end up paying only 31 percent of their monthly income to stay in their home, a very affordable standard. The administration has focused, rightly, on making sure borrowers can manage their monthly payments as the benchmark of their plan's success.

A more important criticism is that HAMP relies too much on cash incentives for the mortgage industry and doesn't do enough to force servicers to act in the public interest. As servicers continue to provide terrible customer service and move all too slowly to modify loans, that concern looks increasingly prescient.

Treasury has been improving some of its work with HAMP, steadily increasing the program's transparency -- releasing information about which mortgage companies meet modification goals and providing the specifics of what calculations each company makes in order to determine the modification a borrower will receive.

Treasury is cognizant of HAMP's problems, but it is still focusing on improving the program's efficacy and responsiveness rather than shifting to a new program entirely. Treasury estimates that 1.2 million people are currently eligible for modifications, and it wants to make sure the modifications are offered rapidly and made permanent.

The most recent numbers -- though already outdated -- show 1,711 homeowners have made their modifications permanent. Hundreds of thousands of others are either in the process of paying their new mortgage for three months or haven't yet completed the paperwork. Treasury released a new system to streamline the paperwork early this month.

"The two biggest things we're focused on are converting trial modifications to full-time modifications and improving the borrower experience," says Seth Wheeler, a senior Treasury Department adviser on housing issues. "Our goal is not to put a stop to all foreclosures but to provide some support in stabilizing the housing market and to provide relief to millions of struggling families. ... We still need to do better, though. Implementation is often inconsistent and too many borrowers are having an uneven experience or even slipping through the cracks."

The problems that COP highlighted, however, won't likely be solved in the near future. The administration prefers to separate out its employment initiatives from this plan to support homeowners, counting on an enhanced social safety net and the stimulus to help reduce joblessness (though more should be done in these areas, as well). The breaking wave of loan resets doesn't appear to have any easy answers, either.

Housing advocates have called on Treasury to change HAMP in any number of meaningful ways, from emphasizing principal write-downs -- essentially erasing a large portion of the loan, a move opposed by lenders -- to allowing people in danger of foreclosure to stay in their homes as renters. Even tweaks to the current program's standards to widen eligibility would be useful. COP also recommends bridge loans for the unemployed to cover their mortgage payments. But thus far, Treasury officials have both reiterated their openness to these ideas and their intent not to implement them any time soon.

Treasury walks a delicate balance, fearful of the politics of bailing out anyone, whether they be homeowners or banks. New policies will be fiscally expensive, and admitting the need for them could be politically expensive. But will either cost be more expensive than failure?