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HAMP: A Kafka-esque Nightmare of Milking Troubled Borrowers

Huffington Post had done a series detailing how few borrowers were getting permanent mods (and even they were misnamed, those mods were five year payment reduction plans). The stories also described how servicers were keeping borrowers far longer in the so-called trial mods, which looked like a cynical effort to milk them. Why? Because when they were not approved for a permanent mod, as happened in a considerable majority of cases (and remember, borrowers were often given false hope by the servicer), they were hit not only for the difference between the trial mod payment and their normal amount due, but also, I kid you not, penalties and late fees! Even if a borrower had been conservative and banked the payment reduction, consider the impact of, say, seven months of late fees. That’s enough to put stressed borrowers over the edge (particularly since the late fees continue to compound until the account is brought current). From Steve Waldman’s write-up of the Treasury meeting: On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those. I disagree with the “not cruel people” assessment. Ignoring the plight of someone who is being harmed, particularly when you are playing an active part in the process, is a form of cruelty. The senior staff at Treasury project the impression of having arranged their lives so as to convince themselves that they are powerless, that they have no influence over the systems of which they are a critical part. It’s no doubt the same logic process used by the conductors of trains that took Jews to concentration camps. They must have noticed that they shuttled passengers only one way, and that the number they were bringing in over time was disproportionate to the size of the camps, but they weren’t about to think about that too hard.

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