The Death of HAMP

Good riddance to bad rubbish.

Obama Program That Hurt Homeowners and Helped Big Banks Is Ending
by David Dayen, The Intercept
Dec. 28 2015, 12:07 p.m.

Perhaps no program of the Obama era did more significant — and possibly irreparable — damage to the promise of an activist government that can help solve the country’s problems.

HAMP’s failure stemmed from its design. Rather than a cash-transfer program that hands vouchers to distressed borrowers so they can lower their mortgage payments, the government gives the money to mortgage servicing companies, to encourage them to modify the loans. But while the government sets benchmarks to follow, the mortgage companies ultimately decide whether or not to offer aid.

To appreciate why this could never succeed, you must understand that mortgage servicers typically have no direct interest in the loan. They are glorified accounts-receivable departments hired by mortgage holders to process monthly payments, handle day-to-day contact with homeowners, and distribute the proceeds. And with small staffs of entry-level workers, they could only turn a profit if they never need to perform any customer service. Handling millions of individual requests for relief simply overwhelmed them.

Furthermore, servicers make their money from a percentage of unpaid principal balance on a loan. Forgiving principal — the most successful type of loan modification — eats into servicer profits, so they shy away from that, opting for less effective interest rate cuts. Plus, servicers collect structured fees — such as late fees — which make it profitable to keep a borrower delinquent. Even foreclosures don’t hurt a servicer, because they make back their portion of fees in a foreclosure sale before the investors for whom they service the loan.
…
With servicers in control of modifications, they could manipulate the program to pile more bad debt on borrowers and squeeze a few extra payments out before foreclosing. Servicers chronically lost borrowers’ income documents to extend the default period. They prolonged trial modifications well past three months, so they could rack up late fees. They granted modifications that folded servicer fees into the principal of the loan, increasing the unpaid principal balance — and thus their profit — while pushing the borrower further underwater. And they trapped borrowers after denying a modification, demanding back payments, missed interest, and late fees, with the threat of foreclosure as a hammer.
…
In the most damning revelations of servicer misconduct, employees at Bank of America’s mortgage servicing unit testified in a class-action lawsuit that they were told to lie to homeowners, deliberately misplace their documents, and deny loan modifications without explaining why. For their efforts, managers rewarded them with bonuses — in the form of Target gift cards — for pushing borrowers into foreclosure.

Despite this, the Treasury Department never permanently sanctioned a single mortgage servicer for HAMP violations by clawing back incentive payments.
…
You can excuse many of Obama’s accomplishments that failed to reach their goals by arguing that they sprung from a broken Congress, with supermajority hurdles ensuring Republican input. But HAMP, after being authorized by the legislation that gave us the bank bailout, was designed and implemented entirely by the White House. Congress authorized the executive branch to “prevent avoidable foreclosures,” and left the details to them. That HAMP became the result is the purest indication of how the Administration prioritized the health of financial institutions over homeowners.

Barack Obama- bootlicking Bankster toady. Good riddance to bad rubbish.