Mortgage Crisis Update: Treasury Tinkers with Failed HAMP Program, Delinquencies and Foreclosures Stubbornly Refuse to Go Away

By Alan White

While the stimulus package and bank bailouts have treated the symptoms of the crisis and saved the banking and mortgage finance systems from collapse, the foreclosure crisis itself is about as bad as ever.  As the foreclosure crisis enters its fourth year, there are some signs that things are not getting worse, but little evidence they will get better any time soon.  New foreclosure starts reached a peak of about 250,000 monthly in the third quarter of 2009, or about quadruple their level in mid-2006 just before the crisis.  The fourth quarter saw a significant decline in foreclosures starts, in both the Mortgage Bankers survey and the OCC/OTS report, to something like triple the pre-crisis numbers.  On the other hand the inventory of foreclosures remains at their peak of more than three times pre-crisis levels, as do total delinquent mortgages (about one in seven mortgages are now delinquent or in foreclosure, compared to less than one in twenty just before the crisis began.) 

Something like 2.2 million foreclosure sales have been completed since July 2007, which should have eliminated almost half a trillion dollars in mortgage debt.  On the other hand, an equal number of mortgages have been modified, in the majority of cases resulting in significant increases in mortgage principal through capitalization.  Net mortgage borrowing for all Americans has been negative for the past six quarters, but total mortgage debt has declined only slightly, from $10.5 trillion to about $10.2 trillion, from the peak in March 2008 to the Fed’s latest sounding on December 31, 2009.  The deleveraging of American homeowners has a long way to go (total mortgage debt was less than $5 trillion at the beginning of 2001.) 

Another way to think about it is to compare the drop in mortgage debt to the drop in home values, i.e. just how underwater are we?  The Case-Shiller index of home prices has declined about 30% from its peak, and mortgage debt is down by only 3%.  This can’t be good.  Incidentally, credit card and other consumer debt is down only about 5% from its 2008 peak, after a 30% runup in the five years prior.

The Administration’s HAMP program to address foreclosures by paying servicers to modify mortgages they should be modifying anyway, has failed.  It has resulted in a net decline in monthly modifications and no perceptible dent in the foreclosure inventory.  The HOPE NOW servicer coalition claims that in January 2010 for the first time HAMP modifications plus modifications servicers did without Treasury help rose to 150,000, significantly higher than the 120,000 monthly total modifications done before HAMP was launched in March 2009.  If true this would be good news, but the investor reports I follow are not showing the large increase in modifications HOPE NOW is touting.  In any event, 100,000 to 150,000 monthly modifications, even if they were all successful, does not solve the problem of 200,000 new foreclosures filed every month and an inventory of 6 million mortgages delinquent or in foreclosure. 

Two weeks ago Treasury announced some tweaks to HAMP that I doubt will have much impact.  The tweaks address two important issues, but with inadequate half measures.  Servicers are encouraged to assist unemployed homeowners by reducing payments further for three to six months.  Most servicers can do this under non-HAMP programs already.  A serious program to help the unemployed would subsidize their monthly payments for 12 to 24 months, as Pennsylvania’s HEMAP loan program does. 

The second HAMP tweak is an effort to get servicers to include permanent loan principal reduction in their mods.  The Hope for Homeowners refinance program already proved that servicers have no interest in voluntarily reducing mortgage debt.  Treasury’s new version will offer 10% to 20% subsidies for principal write-down in conjunction with permanent modifications.  To date, fewer than 1% of HAMP modifications have included principal write-down.  It seems unlikely that a 10% subsidy will change servicer behavior dramatically.

The main difficulty with HAMP has been Treasury’s insistence on being excessively prescriptive in telling servicers how to work out loans.  A year into the program, servicers still do two-thirds of their modifications outside HAMP, despite the generous taxpayer subsidies HAMP offers. 

Sooner or later banks and investors will realize the absolute necessity of writing down mortgage principal.  Instead of nudging, Treasury needs to consider seriously some compulsory write-offs of underwater second mortgages and mandatory principal reduction for owner-occupants who are making modified payments faithfully, often on temporary plans that never seem to become permanent.  Unless taxpayer intervention is speeding up the necessary deleveraging process, HAMP expenditures are simply wasted. 

 

Comments

[lacoste shirts]

nothing in the world is impossible if you set your mind to do it.

[Laura Morton]

It is a shame that homeowners are losing so much equity in their homes. This follows that their net worth is drastically reduced.
Bank of America still doesn't get it. They have a duty to complete loan modifications in a timely fashion. It is obvious that they would rather not do modifications. Isn't there a reasonable profit in loan modifications? And what about the goodwill it would bring the company? Instead, homeowners are made to look like fools. They have jumped through every hoop imaginable. Just last Thursday morning, a friend asked me to fax some documents to the Bank of America. She has been trying to get a loan modification for almost one year. The person working the file always asks for more documents. And sometimes he claims that he didn't get anything.

[Ryan Phillip]

@John Wright: that song reminded me of the novel Animal Farm by George Orwell--

"Have you seen the little piggies
Crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt to play around in."

I've been dealing with a lot of mortgage companies. Calgary based firms mostly and they will be modifying their terms I think starting April 2010 of this year and it's gonna be harsher! We now:
1) must qualify based on a five-year fixed rate even if they choose a mortgage with a lower interest rate and shorter term.
2) the maximum amount Canadians can withdraw in refinancing their mortgages will be reduced to 90 per cent of the value of their homes, instead of 95 per cent
3) A minimum down payment of 20 per cent will be needed for government-backed mortgage insurance on non-owner-occupied properties
I just don't get that most economists say that we are getting better but from the point of view of the middle class there hasn't been any change! In fact, people that have already foreclosed houses may no longer be looking forward on anything. These "pigs" up there don't give a damn about what's really happening and I'm saying this from an ethical point of view.
http://www.innovativefs.ca

[Davil Brain]

I think they should revamp their current mortgage laws. At least the rulings for foreclosure. There are Calgary mortgage brokers said that lenders will often guarantee an interest rate to you as much as 120 days before your mortgage matures. And, as long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage too. This means a rate promised well in advance of your maturity date, thus eliminating any worries of higher rates. And if rates drop before the actual maturity rate, the new lender will usually adjust your interest rate lower as well. The same goes for Fort McMurray mortgage brokers. McMurray mortgage brokers also added that most lenders send out their mortgage renewal notices offering existing clients their posted interest rates. The rate you are being offered is usually not the best one. Always investigate the possibility of a lower interest rate with the lender or another lender. If you don't you may end up paying a much higher interest rate on your renewing mortgage than you need to.
http://nelsonsousa.ca/quick-application-form.php
http://nelsonsousa.ca
http://nelsonsousa.ca

[woman beautiful]

Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming.

[John Wright]

Please,help me and United Law Group send a message to BofA which states, that we will no longer tolerate their potentially irregular, fraudulent and abusive business practices. In the end, the American tax payer did not fail to deliver the BofA bail out in record time, but BofA failed to deliver the American Tax Payer’s bail out in the form of a loan modification. It reminds me of that song by John Lennon and George Harrison titled "Piggies" I invite you to listen to this song on youtube and see if it appropriately fits.

http://www.youtube.com/watch?v=MIopI2isIKcfeature=related

Have you seen the little piggies
Crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt to play around in.

Have you seen the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to play around in.

In their ties with all their backing
They don't care what goes on around
In their eyes there's something lacking
What they need's a damn good whacking.

Everywhere there's lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives to eat their bacon.

This scripture Also reminds me of BofA:

Revelations Chapter 18:
"THEY LIVED IN SHAMELESS LUXURY ......" I think of the BofA and the people at the top when I read this. I am not suggesting that this scripture actually means that it is BofA. I am just simply suggesting that there are similarities. Never the less, these CEO people probably live in their mega mansions in no fear of foreclosure. After all, we do not read anything about the CEO of BofA being foreclosed on. Instead we read in USA Today:

“Bank of America and two former top executives were charged with securities fraud.”

Was anybody really surprised? I remember it seemed like the Countrywide CEO retired the minute the housing crisis broke out. Remember those articles that stated:

“Countrywide Financial Corp. CEO Angelo Mozilo, under fire over the size of his potential payout from the proposed sale of his troubled mortgage company, says he is forfeiting some $37.5 million in severance pay, fees and perks he was scheduled to receive upon his retirement.” Wow! I wonder what his house looks like!? Well at least he got his bail out or modification from BofA.

Too big to fail banks such as Countrywide and BofA, were basically giving out loans that they knew that people would default on. This was done with practically no verification of income. Subsequently, these piggy banks would make millions upon millions of dollars. Leaving the American economy holding the bag full of bad loans. Once the piggy banks realized they had zero accountability, because Wall Street would buy these bad loans, they did not care. This is really where the problem starts. In the end, it seemed that their love of money, would be more important than their love of country. Basically because they knew that it was going to severely damage the American economy. Which incidentally Communist Russia was not brought down by nuclear weapons, but a failing economy. I mean if this were Iran or some other country, it would be considered an attack on the American economy. Ironically, the potential enemy here would not be named Iran, but MORE IRONICALLY NAMED Bank of America. Talk about being hung with your own rope! Maybe they should be named more appropriately “Bank of Defrauding America.”

The little piggy banks potentially caused the whole crisis by:

One:
Giving out loans to people who could not afford the loan. In retrospect, they sort of controlled the price of houses with their invisible money, as well as qualifying unqualified borrowers. Thus resulting in flooding the housing market with people who actually could not afford the home they were purchasing. Less homes available on the market will drive the price of homes up. All this was done with them knowing that the market would eventually be flooded with foreclosures on the people they gave loans, that could not afford the payments. It was like a dam broke open flooding the market with foreclosed homes.

Two:
Making us lose our equity. The result of the instant flood of foreclosed homes on the market would result in driving the price of our homes instantly down. It seemed like we all lost our equity over night and we all became upside down on our loans. Basically our houses were not worth even what we bought them for or borrowed the money for. All potentially caused by the piggy banks.

Three:
Asking for a Bail out: BofA would have the audacity to barrow something like 25 billion dollars from the American Tax Payer. Then they turned around and said they didn’t need it. Of course they didn’t! They sold the loans off! But what did they do with the nearly 25 billion dollars while they had it? They probably put it in an account and collected millions in interest. Basically free money! So the piggy banks would actually be paid and rewarded for their bad behavior and potential crimes. Well how about giving us a billion to put in the banks and collect interest on for a few months. We will also give it back after we make all the interest off of it.

Four:
False promise of a modification: Then piggy banks promise the American people a bail out in the form of a modification. In which they delay, harass and abuse the people asking for them. Which makes us all suspicious and wonder what are they are actually up to now? But what a slap in the American peoples face, after we delivered their bail out in record time. What have they done with that three month trial period money that we gave them? Probably put in the bank and made interest on it again! Sounds like we are being used over and over and over again! Depending on BofA’s integrity and empathy in the form of a loan modification, is insinuating that they had any integrity or empathy to not cause it all in the first place. I see it as equivalent as asking the bully who just stole your lunch money for a loan!

Five:
In the end Thomas Jefferson was right:

Thomas Jefferson 1802
‘I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their ufathers conquered..’

Revelations:
“RENDER HER EVEN AS SHE HERSELF RENDERED, AND DO TO HER TWICE AS MUCH , YES TWICE THE NUMBER OF THINGS SHE DID; IN THE CUP WHICH SHE PUT A MIXTURE PUT TWICE AS MUCH AS THE MIXTURE FOR HER. TO THE EXTENT THAT SHE GLORIFIED HERSELF AND LIVED IN SHAMELESS LUXURY.”

Is it time to start pouring twice the measure into BofA’s cup!

I have filed a lawsuit against BofA . Please read article at
http://news.yahoo.com/s/prweb/20100323/bs_prweb/prweb3766544_1

I have heard that the BofA higher ups are looking at this site and I could use your supporting comments.

Thank you for your support.
John Wright
Homeowner and Taxpayer

God Bless