October 12, 2009 11:42 AM
Mortgage Loan Modifications Going Slow
A Congressional Oversight Panel recently concluded that the Obama administration's Home Affordable Modification Program (HAMP) is not going to be able to address many troubled mortgages. The program was not designed to address foreclosures caused by unemployment, and many borrowers also have loans that aren't eligible for the program. requirements. Even if it meets its goal of making 25,000 to 30,000 loan modifications each week, half of expected foreclosures won't be addressed. Many of the HAMP modifications are unsuccessful because lenders are not making modifications that are affordable to borrowers.
The Panel missed a possible fourth fundamental weaknesses in the HAMP program - fraud. A government witness at a recent House Financial Services Committee hearing testified that some mortgage modifications scored as HAMP loan mods were really normal refinancings of healthy mortgages. The lenders motivation for doing so would be to get the government to pay for the administrative costs (they are subsidized by HAMP) and earn points with the Obama administration for "doing the right thing". Both Congress and the Congressional Oversight Panel should investigate this allegation because it would have a significant impact on the actual success of the program.
The lack of support for HAMP by the lender community suggests that the best alternative is to let independent third parties decide whether it is in the interest of the lenders' stockholders to rework troubled mortgages. This is a traditional and appropriate job for bankruptcy judges, and Congress should enact bankruptcy reform legislation to empower them to do so.
The Panel missed a possible fourth fundamental weaknesses in the HAMP program - fraud. A government witness at a recent House Financial Services Committee hearing testified that some mortgage modifications scored as HAMP loan mods were really normal refinancings of healthy mortgages. The lenders motivation for doing so would be to get the government to pay for the administrative costs (they are subsidized by HAMP) and earn points with the Obama administration for "doing the right thing". Both Congress and the Congressional Oversight Panel should investigate this allegation because it would have a significant impact on the actual success of the program.
The lack of support for HAMP by the lender community suggests that the best alternative is to let independent third parties decide whether it is in the interest of the lenders' stockholders to rework troubled mortgages. This is a traditional and appropriate job for bankruptcy judges, and Congress should enact bankruptcy reform legislation to empower them to do so.
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