Back in February 2009, the Obama administration launched the Home Affordable Modification Program, one of several initiatives under an umbrella program called Making Home Affordable. The goal of the program was to entice banks into modifying millions of mortgages using a system of sticks and carrots: payments for successful modifications and sanctions for failing to keep borrowers in their homes.
However, the program quickly fell on its face. A change in bankruptcy law allowing what are known as mortgage cram-downs, which was supposed to be the major stick used against the banks, failed to get through Congress after intense lobbying by the banking industry. The banks, particularly Bank of America, became notorious for losing borrowers’ paperwork, running them in circles, and even foreclosing on them while they were in the midst of obtaining a HAMP modification. Back in November 2009, Andrew Jakabovics and I uncovered Bank of America violating HAMP by trying to siphon borrowers off into its own private modification program.
More borrowers wound up entering HAMP and getting booted out than ever received a sustainable mortgage modification. Despite all this, only now, two years and four months after HAMP launched, has the administration finally seen fit to slap some sanctions on the banks:
Three of the nation’s largest mortgage servicers will no longer receive payments tied to their participation in the Obama administration’s main foreclosure prevention initiative until they improve their performance in that program, a senior administration official said Wednesday. Bank of America, J.P. Morgan Chase and Wells Fargo need to make “substantial improvements” to collect fees through the Making Home Affordable Program, which helps struggling borrowers by lowering their monthly mortgage payments. The companies failed to meet basic program requirements, such as properly contacting borrowers, the official said.
This is simply far too little, far too late. As Firedoglake’s David Dayen wrote, “These steps, like withholding incentive payments, and mandating a single point of contact, and introducing the net present value calculator, are all things Treasury should have done IMMEDIATELY when they saw the servicers abusing the program. That would have not only forced compliance, but alleviated the suffering of hundreds of thousands if not millions of borrowers. It took too long to get to this point.”
At this point, the HAMP’s ship has largely sailed, and less than $2 billion of the $50 billion dedicated to the program has been spent. According to Reuters, the Obama administration is looking for new ways to help ease the housing crisis. Here are some ideas that the administration should adopt.