Felix Salmon: The Big O's HAMP loan mod program for housing is a steaming pile of crap
I'm shocked. Felix Salmon:
As of today, Treasury has started releasing a new set of datapoints with respect to its Making Home Affordable program. Look at page 5 of the monthly report on how the program is doing, and you’ll see a page detailing what they call the “disposition path” of the 194,056 trial mortgages which have been cancelled through April.
The first thing to note is that the enormous number of failed trials — to put the number in context, there were only 299,092 permanent modifications started through April — is not a sign of good news, where the borrowers have exited the trial by paying off their mortgage. That only happened 1.1% of the time. ...
Instead, depressingly, by far the most common reason for abandoning the HAMP trial is “Alternative Modification” (48.9%). ...
Remember that in these cases the HAMP modification is not only subsidized by the government: it was also entered into, after enormous amounts of paperwork, by both the borrower and the servicer. It’s hardly credible that after going through that laborious process, both of them would happily tear up the agreed-upon modification and enter into something more mutually beneficial instead.
Rather, I see here evidence that the HAMP modifications are so weak and so unhelpful that there’s far too little incentive for borrowers and lenders to stay in them. And of course we know why that would be: such modifications almost never make a significant dent in the principal amount outstanding, and as a result homeowners who are underwater on their mortgage simply remain underwater on their mortgage, with the concomitant enormous probability of redefault.
Does Treasury grok this? There’s no indication that it does
"Grok" it? They like it. At some point, we really do need to surrender the notion that the Ds don't know exactly what they're doing. (Of course, pundits will be the last to do that, because telling the Ds what they ought to be doing is their stock in trade.) You don't bat zero for the season without a plan!
I mean, what are we, three years into GD II? And the Ds can't find a way to help people stay in their homes? They could help people if they wanted to -- with HOLC (HOLC generally), say. They don't want to. As Aristotle says: "You are what you repeatedly do."