Last weekend, the Washington Post reported that one-quarter of the borrowers enrolled in the Home Affordable Modification Program (HAMP) are behind on their payments, providing just one more dent in the armor of the administration’s signature foreclosure prevention plan. HAMP is suffering on multiple fronts, from banks dragging their feet and outright violating their contract with Treasury, to design flaws preventing all of a borrower’s debts from being taken into account when the modification is designed.
To fix this, House Democrats are looking (yet again) to revive cram-down, a measure which would allow bankruptcy judges to rework the terms of a mortgage. Cram-down was part of the administration’s original vision for HAMP, but the measure went down to defeat in the Senate, after an intense lobbying campaign by the financial services industry.
Democrats are planning to attach cram-down as an amendment to Rep. Barney Frank’s (D-MA) regulatory reform bill (with Frank’s approval), which is set to come to the House floor sometime this week. If the measure passes (this time, with the added wrinkle that the borrower must “convince the judge that he or she has made sufficient efforts to complete a loan modification” through HAMP), it will mark the third time that the House has passed cram-down.
Meanwhile, during a hearing today examining HAMP’s flaws, Rep. Jeb Hensarling (R-TX) explained that the best way to prevent foreclosures is to create jobs, and the only way to do that is to block and obstruct health care reform, cap-and-trade, and regulatory reform:
That is a plan. That is a recipe to create jobs in our economy…And if you create jobs then people can keep their homes. Nothing short of that will work.
This sounds remarkably like anti-tax crusader Grover Norquist’s bizarre foreclosure prevention plan, which hinged on Congressional vacations. But contrary to their assertions, there are still plenty of steps that could be taken, including mandatory mediation before foreclosures are finalized or authorizing housing counselors to approve HAMP modifications.
And while cram-down’s chances of passing the Senate appear no brighter than last time, it still would be a good way to encourage banks to make modifications. As Prof. Jean Braucher wrote in a new study, “bankruptcy modification is administratively efficient in that the bankruptcy courts are already operating and available immediately. Also, servicers, with their perverse incentives, and junior lien holders are removed as obstacles. Furthermore, bankruptcy is not an appealing choice to any borrower and is unlikely to draw borrowers who can afford their payments.”