The federal government’s Home Affordable Modification Program (HAMP) showed new signs of success in August after several months of unsatisfactory results. The program, which gives incentives for lenders to offer loan modifications to troubled homeowners, is responsible for a total of 360,000 trial loan modifications, approximately 12% of eligible borrowers. An additional 211,000 borrowers have been offered similar trial modifications. Modifications from Wells Fargo, one of the banks previously criticized for offering too few modifications, increased 64% over 30 days. Current numbers still fall far short of the program’s objective of 3 million modifications.
first tuesday take: Modifications, dear reader, tend to leave a bad loan bad, delaying the inevitable foreclosure for lack of a long-term, real estate value-related cure. Of course, any increase in loan modifications is welcome, but HAMP remains unworkable: a misguided and insufficient program. The federal administration now acknowledges HAMP’s failure, but is unwilling to do what the public knows is needed—grant judicial authority for bankruptcy judges to compete with lenders to cram down loans on homes to a level at or lower than the property’s present value.
The mild incentives that HAMP offers lenders will not alter lender behavior. Lenders will always do what is in their own best interest. More often than not for delinquent borrowers, solvent or otherwise, that means foreclosure.
Congress and the administration need to turn their attention to the causes of bad loans, like job loss and the lack of lender parameters (regulation) to both stop the loan defaults by cramdowns, and prevent future loans being made under the same devilishly fiendish terms.
For the history of this ongoing saga of government vs. lenders, see first tuesday’s news blog entry from last month: “Federal loan modification plan lags (and lacks).” The accompanying take explains exactly what you can expect from lenders, and what the government should do to change their behavior.
Re: “BofA, Wells step up mortgage efforts”, from The San Francisco Gate