Administration plans new efforts on foreclosures

[BobMango]

... TARP funds are not being used specifically for modifications.

This is just not true. Once again, the GAO specifically states (see previous link):

"Under HAMP, Treasury will use up to $50 billion in TARP funds to (1) modify the first-lien mortgages of homeowners in danger of foreclosure, (2) encourage the modification of mortgages in areas experiencing serious declines in property values, (3) reduce or pay off second-lien mortgages for homeowners with loans modified under HAMP, (4) arrange deeds-in-lieu or short sales as alternatives to foreclosure; and (5) provide incentive payments to encourage refinancing under the HOPE for Homeowners program."

This looks like a pretty clear statement from the Government Accounting Office that TARP funds are being directly used to modify first mortgages.

...There are no strings to the other TARP money, which is what I stated earlier.

Again, not true. It is true that when TARP was first signed, there was no HAMP. This is a great example of the gov't changing the rules after the fact. The HAMP regulations weren't published until March of 2009 so the institutions that took TARP funds were not aware of all the strings. The legislation was modified by section 7002 of the American Recovery and Reinvestment Act of 2009 to allow the creation of HAMP.

TARP doesn't even, in the preamble or purposes section (Section 2), mention foreclosure or modification at all. It speaks specifically to liquidity and stability of the financial system.

https://www.hmpadmin.com/portal/docs...nagreement.pdf

The home page for HAMP is here: https://www.hmpadmin.com/portal/programs/hamp.html

Bottom line, this whole thing is a fiasco. It was sold to the public for one purpose and completely changed after the fact. This is one of the major reasons that businesses are not hiring and consumers are not spending...no trust that the rules will not be changed later when you can't opt out.

[banca rotta]

Bottom line, this whole thing is a fiasco. It was sold to the public for one purpose and completely changed after the fact. This is one of the major reasons that businesses are not hiring and consumers are not spending...no trust that the rules will not be changed later when you can't opt out.

Now you are catching on. I have to admit I was scared and believed them too for a moment.

As I write this the US Economy is dying. It's been dying since early 2008.

Govt lies and printed money have inflated everything since Early 2008.

Money is being stolen from the private economy and given to the banks all in the name of helping us and "saving the system".

Unless we let "too big to fail" actually fail and start manufacturing vital goods and services again it's all over.

All of the bailouts whether it's to individuals to help with their mortgages, big banks, car companies will just speed it up.

[justbroke]

This is just not true. Once again, the GAO specifically states (see previous link)

I think we'll disagree on just what TARP is doing. The only thing it is doing it "encouraging" banks to modify loans. The GAO report doesn't account for $1 going to actual modifications. The $1K incentive payments are just that. I haven't seen anywhere that a direct dollar accounting is made. Also, it seems the Treasure and Congress never actually do what the GAO reports on. Show me the numbers. I'm not talking like 30,000 to 40,000 permanent modifications. I'm not talking some theoretical 600,000 "temporary" or "trial" modifications made, under all programs. Let's be nice and say 10% of the 3-4,000,000 that HAMP claims it could help. I'm talking 300,000-400,000 or more permanently modified mortgages, purchased under HAMP/TARP. (Hint, there's not enough money in the program to do it, and there is no data to support that HAMP has even paid out a dime yet in that report.)

Again, my statement on what the earlier TARP requirements were, stand. There is no linkage between banks that took early TARP money and any need for them to account for or to modify loans, short of "encouraging" and maybe some public humiliation. HAMP still is not working for foreclosures, is the bottom line. That's because the majority of tarp, $650Bn is appropriated for other reasons... not HAMP.

This is also why a good number of Banks started paying back or have paid back TARP money so that they wouldn't be... hamp-strung.

Trust me, I fully understand HAMP, HOPE, TARP and a bunch of other programs created by various Acts. The problem I have is... they are not stopping foreclosures. Forestalling, yes... actually stopping... no. There is no accounting to date and only number thrown up. The GAO even furthers my point by concluding in their report that the "Treasury is unable to adequately identify, assess, and address any potential risks that may prevent them from fulfilling program requirement". In other words... we're just going to try this and see what happens.

My disdain is pure and simple. Read the GAO report and actually work the numbers, because others seem to not have. They want to modify 3,000,000 first mortgages. They have $32.5Bn with only $18Bn obligated. So, given the program value of $32.5Bn, we're looking at $10,500 over 5 years for these 3,000,000 mortgage modifications. That's $10,500 less the $3K incentive, so it's $7,500 over 5 years. that's $1,500 a year.

Someone explain to me how $125/month is going to work? Please?

It's in the intricacy of the program and why it is doomed to fail. The government is not funding this and why I will say that HAMP doesn't fund these. In order to get any of the "cost" sharing (that $125/month over 5 years), the lender would need to take the first loss by reducing the (payment to income) PTI to 38%. See... HAMP doesn't cover that. Then to get it to 31% PTI, the cost "sharing" comes in.

Now tell me where the incentive is, again, for lenders?

I think TARP was the right thing to do, I just think it was implemented incorrectly. If the Government really wants to be in the business of modifying loans, then they should have used TARP expressly as originally contemplated. There is no re-do, so all they are doing now, is throwing around money that isn't really helping the long term issue. The patchwork is no different than HOPE and this will only forestall, not prevent, some additional foreclosures.

To me, that's smoke and mirrors. I do not see HAMP doing anything that TARP was supposed to do initially. I don't care that Congress modified TARP after the fact, to create HAMP and to change some language to make them look better. Fact is... not even the GAO knows what's going on!

So, we'll just have to disagree that HAMP actually will pay out and hold these lenders to the fire. The lenders only do this because they smell money. The HAMP program only has incentives (to lenders) for 5 years, and there's no indication that Treasury even has the program under control.

Bottom line, this whole thing is a fiasco. It was sold to the public for one purpose and completely changed after the fact.

I'm glad you see this, because you sound like you believe the program is both working and doing what it was intended to do.

I, for one, am not drinking the cool aid yet.

[justbroke]

Hey BobMango, I still haven't found any GAO/CBO report which actually shows that they've done anything other than "commit" money. Also, none that show actual purchases of 2nd mortgages, or even purchases of first mortgages.

[Tom_Mi]

I think the entire problem is because we don't understand our Foreclosure sytem. The huge credit hit and 3-year mortgage blacklisting are inappropriate for a down mortgage market.

The solution to this entire problem is simple:
* 2-year moratorium on FHA's waiting period.
* Require recent-foreclosure applicants a 20% cash downpayment.

In a rising market it's understandable that foreclosures should be rare. After all, you can just sell and move. How does job loss or transfer correlate to the desire of an individual to pay their debt? How does a one-time crisis require a 3-year blacklisting?

This would:
*Retain a bank's right to their asset.
*Get the market re-valued quickly...we're not helping people stay, but we're not penalizing them if they save and try again.
*Keep the consumer's income in the bank! I WANT to have a mortgage payment again, just one I can afford.

Finally, it would share the blame. My bank told me condescendingly: "Sir, we lent you this money in good faith that you'd pay it back...". Not true. They lent it to me (only after an appraisal) in good faith that they could resell it if I didn't pay it back.

[justbroke]

The problem is, with an economy that is at 10.2% "reported" unemployment and 20% real unemployment/underemployment... people can't pay. It's a tricky system. i was hoping HAMP would actually do something, but I haven't read one report where they haven't done anything but "commit" to paying servicers/lenders. The reports may just be lagging, but the problem is still there. Without full employment, we are just not going to see recovery.

[BobMango]

Hey BobMango, I still haven't found any GAO/CBO report which actually shows that they've done anything other than "commit" money. Also, none that show actual purchases of 2nd mortgages, or even purchases of first mortgages.

I agree, I can't find any reports that indicate the money has actually been used as "intended" in the legislation that modified TARP.

I think this was the impetus of the "new" focus from the government. The financial institutions took the money and didn't do what the feds wanted them to do.

I think we're in violent agreement regarding TARP. I don't think it's working or even had a chance to work. Too much government intervention destroys faith in the market, leading to the bunker mentality we are seeing in small business, consumers and investors.

I've been opposed to TARP since the beginning because I believe that direct assistance to the homeowners would have been a much more effective way to try to salvage the housing market if we really wanted to do that. Estimates on the total mortgage value of homes in the US are widely divergent, but around $10T seems to be a fairly good number. Taking this number we could have provided roughly a 15% "rebate" to all mortgage holders instead of bailing out Wall Street, failing automakers, etc. That would have provided significant relief to more homeowners than we've seen so far.

[justbroke]

I do want it to work, whatever "it" is. My disdain for Congress, and the current and former Administration will probably continue until they all stop placating to their contributors and start working for the People.

If I had the money, I'd start a campaign... Vote None of the Above! Too bad, there is no such option on the ballots. I'm sorry for being overly verbose in my responses, but I'm visibly disturbed by this whole TARP program.

[Flamingo]

The government really needs to green light senate bill S.B. 61 to allow modification of primary residence first mortgages in chapter 13 bankruptcy. That doesn't cost the government money, it at least keeps monthly payments coming into the banks, and the homeowner can stay in their home.

Due to the effect of this (cramdowns) on homeowner's in good standing and also trying to keep in line the rush of people who would line themselves up to file Chapter 13 to take advantage of the situation, it doesn't look like it will ever pass. When all this was hot in the news in the recent past the flood of letters to the editor in newspapers and other articles on the situation showed there could be a revolt of mortgage holders in good standing.

[sofarsogood2]

JB and HHM,

Keen analyses both. I would add one observation.

Foreclosure rates are TOO dependent on a stigma that is fast disappearing as people realize that their equity will not recover for a decade or two.

A couple recent studies, over the summer, have downright depressing forecasts about the tipping points for people to default strategically. Over 100k, most people (higher than 50% I think), are considering default. Even id they COULD stay, financially. At 200k lost, the number goes a little higher.

The most frightening thing, perhaps, is this: When people personally know someone who defaulted, they are EIGHTY-FIVE percent more likely to do so themselves. Almost like they need someone to do it first to relieve the embarassment. If that is true, others in our neighborhood are about to get the go-ahead from us.

Perhaps it is justified, perhaps not. No moral quibbles here, just the observation.

I believe we will see a huge wave of stategic walk aways in 2010- I think the government and the banks have overestimated how far people will go to save an underwater asset. Add to the fact that even if you continue to be "good" with your credit cards, you get punished. The humliation factor is fading fast. I see it in discussions with my upper middle class group of aquaintances, who are now becoming the very group they trashed less than a year ago (those "stupid" people who got in over their heads) But now it's acceptable to them- it's "not their fault the economy crashed and they can't pay their ever increasing interest rates", it's "not their fault they live paycheck to paycheck and their boss cut their salary or hours."

Unfortunately, that is they way most people were taught to live. As long as you could make your min. payments, you were good, until you can't. People are no longer worried about their FICO. It's becoming acceptable to default- in some circles, even considered the smart move to make. As this group grows, the defaults and walk aways will increase, and the domino effect rolls on. As you said, people who see others walk away, and that those people's lives go on relatively OK- the impulse to do the same will become stronger.

I believe the gov. and banks are waiting till we cross an already determined number of defaults and THEN they will take the truly neccessary steps (this will not be because they want to help the masses, it will be because not doing so will be financially painful for the banks)- some sort of mandatory across the board reduction in rates or a % of principle forgiven. But it may be too late. We haven't reached that tipping point yet- in the meantime the gov. is assisting banks to build up enough capital to ride thru that mandatory change in terms. Either that, or we are all doomed no matter what steps we take. Once the pain is felt by enough of the masses- it could get real ugly out there. JMO

[momisery]

One other reason for the economy failure besides the jobs and housing collapse would be the increase in fuel prices. Remember the huge push up in prices that put many over the edge? We all see to forget too quickly that the oil/gas industry had a lot to do with this recesssion just like it did for the one in the late seventies.
As for the bail outs to banks, many did use the money to stay afloat and they are hoping housing goes back up so they can sell these assets back at higher prices. And a even larger number of banks used the funds to "add a footprint" ... meaning buying up other banks that were failing. I have not doubts that we would be in the second great depression if they would not have propped up banking and wall street. My concerns are that borrowing money with interest is one thing, but borrowing it to idiots that are still paying workers too much in upper mgmt as if they are making profits and worthy of it does not make sense. With that in mind, and the attitude of the public, most of us hope to take the whole darn system down now, everyone that has a job will be out of one so we can all enjoy the pain, starting with wall street ... Only a few are paying for this mess, and most of them have the least to lose in money and the most to lose in living standards. That is plain ole wrong. It is plain ole wrong to think we should have people getting rich off of hiring slave labor and because they are doing it is China it is acceptable to buy those goods. So, we are wrong from the top down, and have been for decades now.