David Dayen’s Portrait of HAMP Failures

David Dayen at FireDogLake is doing a great job with a series Portrait of HAMP Failure (Four Parts so far, Part One, Two, Three, Four.)

The key is in the title of the first post: “It Makes Your Financial Situation Worse.” The power asymmetry between the banks and the borrowers is the most obvious problem. The borrowers should have disproportionately more power, as they are the ones who can walk or stop paying. The shame that comes from this is overwhelming, but it doesn’t have to be that way at all. What you are seeing in the aggregate isn’t speculators or hustlers but ordinary people who bought at the wrong time. That happens all the time, but the idea that the growth of a family should be collapsed for a decade, that the dynamic labor market needs to have bodies through on the gears as people can’t move or short sell to pursue new jobs and opportunities, that ownership looks indistinguishable from debtor’s prison is not only devastating for communities but also the macroeconomy.

These foreclosures are described as lose-lose-lose, as it is a loss for the borrower who can often pay some profitable amount to stay in the home, a loss for the creditor who gets a recovery value of half to two thirds the normal value of the house, and a loss for the community as foreclosures drag down their neighbor’s values. In this situation, after a credit bubble, it’s an additional loss (four losses!) for the macroeconomy, as people can’t move to pursue new opportunities, prices are held at inflated rates by bondholders and servicer to keep balance sheets high and the excess leverage drag the economy to a standstill.

At the breakout panel for mortgage securitization at the GSE Reform panel last week several random investors brought up, almost by random, how the second-liens were the reason all these mortgage modifications were failing. I’ve heard that from so many people that this specific target strikes me as the obvious point of investigation. However that would require our government to get serious about the balance sheets of the four largest banks. Think that will happen anytime soon?

I encourage you and people you know to contact Dayen about your stories with HAMP. There are a lot of financial people who read this blog, so if you are a servicer on the other end of these situations Dayen would certainly listen to your story and keep your anonymity if required when writing your point-of-view.

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9 Responses to David Dayen’s Portrait of HAMP Failures

  1. Pingback: Links 8/27/10 « naked capitalism

  2. Pete D says:

    It doesn’t contradict your wider (and correct) point, but this bit makes the mind boggle a bit – from his 4th piece:-

    “Initially, GMAC offered Jane a three-month forbearance (a suspension of payments for three months), which she turned down. They summarily rejected her application and told her to continue paying her $2600 monthly payment (presumably until she hit the default stage; this whole time she has remained current on the payments by dipping into savings). They also told her that any change in income would result in her having to restart the paperwork process all over again, jumping through the exact same hoops.”

    THAT’S WHAT SAVINGS ARE FOR !! I mean, if you lose your job, you dip into savings. Don’t come crying to me about that.

  3. Lynn says:

    It is easy to understand what the problem is:

    1. Taxpayers bail out the banks
    2. Banks loose paperwork repeatedly. And, they seem to have different rules
    3. Homeowner defaults on loan and reposession takes place
    4. Unless the mortgage is a conventional loan, HUD steps in and pays the loan
    5. Banks walk away laughing at the Waterloo they have created for Obama

    I personally had a horrible experience with Bank of America. My HUD approved credit counselor agrees with me – that the entire process is a joke! When I bought my home, I had to jump through hoops to qualify. I purchased my home in 2001 for a fair price. I became disabled because of complications caused by a brain tumor that was removed when I was a teenager. When Bank of America offered me a 5 year ARM, I refused. I continue to make my house payments on time and in full. I refuse to give up my home so if I have to clean toilets or walk someone’s dog or iron their clothes that is fine with me. I will continue to do everything I can to hold on although I am very worried about the future. If my taxes or home insurance increases (insurance has increased twice) I just might loose the battle.

  4. Pingback: July Unemployment & Foreclosure Numbers « Chasing Fat Tails

  5. Oldboatman says:

    I am puzzled by your second lien statement.

    As I understand second liens, a foreclosure on a first lien destroys the second lien. When a first lien goes into foreclosure, the second lien holder must either cut a deal with the first lien holder (i.e., put new money into the property and acquire the first lien) or lose the second lien. The alternative is for the second lien holder to appear at the sheriff’s sale and outbid the first lien holder.

    The existence of a second lien would seem to help the HAMP process. The homeowner should be willing to accept a larger surviving mortgage if a second mortgage can be cut off.

  6. Ed says:

    HAMP is a complete train wreck …I’d love to know what these idiots were thinking when they decided to us gross (versus net) monthly income as a starting calculation ..

    Let’s take a poll …How many people do we know that lives on their actual gross income?

    HAMP is a classic example of our governments incompetence, and fiscal irresposibility

  7. d.Paulsen says:

    Yes basing on gross income is a joke. 31% for mtg., 31% for Uncle Sam, we’re already over half of income and then we still pay sales tax on everything we buy, and then another 31% to have a car and keep gas in it each month to go to work, 31% to pay for minimum household utilities such as electricity(power comp. rates have gotten outrageous), gas, phone, 31% to eat….. lol oh wait too many 31%’s… go without eating? Go without car? In the old school days we used to always say that 25%, or one weeks pay should cover mtg., but we based on what we took home, not gross.
    Look at a working persons pay stubs, a per thousand dollar gross is lucky to walk after FICA, SS,state tax, 401k contributions, and medical and dental insurance with 5-600 dollars. On top of that expenses to get TO work might as well come off the gross, because if you didn’t get there there would be no gross, so, yes, basing off gross is grossly over rating income.

  8. Pingback: Here Comes Tomorrow » Obama Gets Exactly What He Wants, Almost Every Time

  9. t weaver says:

    My mortgage is with Wells Fargo and I went through Hamp to get a modification. You know what kind of modification I got?? 55 whole whopping dollars!! The whole process is a joke!! All hamp did was let Wells dictate the whole thing and I got more or less no help. I was unlucky in that I purchased my home in jan. of 08 and i would say I am conservatively underwater on my mortgage by about 40,000. I am currently in default and what is so sad about it is rather than take a reasonable payment agreement they would rather foreclose and take the loss. Or do they really take a loss?? Probably not. It is an FHA loan?? What would you do?

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