For months now, the Obama administration signature foreclosure prevention program — the Home Affordable Modification Program (HAMP) — has been sputtering along, with more borrowers now getting booted out of the program than receiving a sustainable mortgage modification. In fact, many borrowers who enter the program wind up worse off financially, as the failure to obtain a permanent modification results in the borrower owing back fees and late penalties to the bank.

One of the biggest problems with the program is that the banks simply have no incentive to participate on a large scale, as they receive incentive payments for successful modifications but are subject to no repercussions for failing to keep qualified borrowers in their homes. Yesterday, the Special Inspector General for the Troubled Asset Relief Program (TARP), from which HAMP’s money comes, noted that just $600 million of the $50 billion allocated to HAMP has been expended, adding that “a program that began with much promise now must be counted among those that risk generating public anger and mistrust.”

Now, the program is designed to pay out incentives to mortgage servicers for every borrower that stays current over the next few years, so that would explain some of the delay. But it doesn’t explain why barely more than one percent of the money allocated to the largest Obama administration program meant to aid homeowners has actually been expended.

According to the latest data, which was released yesterday by the Treasury Department, about 466,000 borrowers have received permanent mortgage modifications under HAMP, while almost 700,000 trial modifications have been canceled. Another 30,000 people received a “permanent” modification, only to have it canceled. The program clearly needs some reworking.

And there are things that could be done to get more borrowers into sustainable modifications and to move the HAMP money out the door faster. For one thing, housing counselors could be given the authority to approve loan modifications, and if the banks don’t challenge the modification in three months, it would automatically become permanent. Paul Krugman wrote that such a move “would do a lot to clarify matters and help extract us from the [mortgage] morass.”

Yesterday, Paul Willen, a senior economist and policy adviser for the Federal Reserve Bank of Boston, said that recent anti-foreclosure efforts by the federal government have amounted to just “three years of failed policies.” “To prevent foreclosures we must pay lenders or borrowers a lot of money or force lenders to modify loans even when they don’t want to,” he said. “The idea we can go forward and all we need to do is tweak things a little or change a rule here or there or even change a lot of rules and give some incentive payments — that is not enough.”

When it first came before the House of Representatives, the Troubled Asset Relief Program (TARP) was defeated after House Republicans failed to deliver on their promised votes. At the time, House Minority Whip Eric Cantor (R-VA) and other House Republicans circulated a plan that, instead of authorizing the government to purchase toxic assets, would have it ensure hundreds of billions of dollars in mortgages.

Cantor claimed that the plan “does not leave the American taxpayers with the bag and makes sure that Wall Street pays for this recovery.” However, as economist Robert Waldmann noted then, “I can’t manage to find any reason to doubt that the House Republicans’ plan would destroy the US financial system,” as it actually gave mortgage holders an incentive to push for defaults (since the U.S. would explicitly cover the losses).

As it turns out, former Treasury Secretary Hank Paulson didn’t think very much of Cantor’s plan either (or the GOP response to the economic crisis, as a whole), and in his memoir derides Cantor’s “unformed” proposal:

[M]eetings with the Senate GOP were “a complete waste of time for us, when time was more precious than anything,” and Eric Cantor’s suggestion that TARP be replaced with an insurance program was met with outright derision from Paulson. The usually un-snarky Paulson hits the minority whip with particularly hard, ridiculing Cantor’s insurance plan by sarcastically suggesting the administration abandon efforts to prop up the collapsing financial system – just to try out Cantor’s unproven, “unformed” insurance scheme. “I got a better idea. I’m going to go with Eric Cantor’s insurance program,” he writes. “That’s the idea to save the day.”

TARP, for all of its warts and lack of accountability, really did pull the economy back from the edge, and the ultimate losses are going to be far below the headline $700 billion (and in theory will be totally recouped by the Obama administration’s proposed bank tax, which Cantor opposes).

But this just completes what has been a bad week for Cantor. He has had to answer a slew of questions about his obvious hypocrisy regarding the economic stimulus package, which he voted against, but still trumpets projects from. And he has continued this game, appearing on Greta Van Susteren’s Fox News show last night to claim that “jobs weren’t created” by the stimulus, but he has still appeared at events to tout a high-speed rail line project funded by the stimulus that he says will “create a lot of jobs.” He has cited estimates of 85,000-160,000 jobs created by the project. Watch a compilation:

Last week, the Obama administration proposed a .15 percent tax on financial institutions with more than $50 billion in assets, to be assessed on liabilities, minus deposits. Since the announcement, the banking lobby — along with Republicans in Congress — have been bemoaning the supposed burden of the fee. Yesterday, Steve Bartlett, President and CEO of the Financial Services Roundtable (which represents the 100 largest financial firms in the country), appeared on C-Span to complain about the “bizarre, punitive” tax. He said that, in his view, the tax constitutes a illegal bill of attainder for singling out companies for taxation:

It is one of the more bizarre, punitive taxes I’ve ever seen. It’s sort of portrayed as a tax, and also as a way to pay back the TARP and also as a way to punish people who are expressing their views in Congress…This fee or tax is kind of a tax in search of a purpose…It singles out fifty specific companies, and those fifty companies would pay this tax.

Watch it:

Bartlett is not the only one playing the “unconstitutional” card. The Securities Industry and Financial Markets Association (SIFMA) has reportedly hired a lawyer to look into challenging the tax on constitutional grounds. But as the New York Times reported, “legal experts have called those claims dubious.” And Bartlett is just flat-out wrong that the proposal singles out fifty specific companies. In fact, it lays out a clear criteria for which firms will be affected, not naming any one in particular. This makes the case for a bill of attainder tenuous at best.

On a more substantive note, the banks are continuing to moan and groan about a proposed tax that is really quite tame. Its aim is to collect $90 billion over ten years, which amounts to $9 billion a year, from all the covered institutions collectively. JP Morgan, which just announced quarterly profits of $3.3 billion — while upping its 2009 compensation pool to $26.9 billion — would be responsible for paying just $1.5 billion annually, which is the most of any institution.

Dean Baker did some back-of-the-envelope calculating and found that “the tax will be equal to roughly 5 percent of the combined profits and bonuses at the large banks.” So it clearly could have been higher, for a longer period of time, and been allocated to continued deficit reduction even after all of TARP has been repaid.

As Paul Krugman wrote, the banks are acting like “a drunk driver who, after killing a number of pedestrians, received life-saving treatment at a nearby hospital — and responds by suing the doctor.” And it really seems that they are ready to call as out of bounds any step aimed at fully compensating taxpayers for their role in salvaging the financial system.

Yesterday, Politico reported that the Obama administration is mulling over implementing a bank fee in its next budget, in order to “recoup” the cost of the Troubled Asset Relief Program (TARP) and decrease the deficit. Of course, the banking lobby is up in arms:

Edward Yingling, president and chief executive, American Bankers Association: “To impose yet another burden on the industry would obviously decrease their ability to lend.”

Scott Talbott, head of government affairs, Financial Services Roundtable: “Placing additional taxes on top of the new regulatory burdens will stifle the industry just as the economy is beginning to recover.“

Yingling also referred to the proposal as “perplexing,” while another banker called it an “absurd idea.” The main argument coming from the banks is that they either already have or are in the process of paying back TARP, and that any losses are going to come from either the automakers or AIG.

However, as Tim Fernholz pointed out, the TARP law does stipulate that any losses be recouped from the banks. “This began long before everyone started gearing up for the next cycle of bonus madness as an obviously needed response to the bank bailouts,” he wrote. A revenue-raising mechanism to fit this requirement has been under debate for some time within Treasury, so the bankers don’t have much of a leg to stand on.

Still, I don’t understand why the administration is making this about recouping TARP, in isolation, when it could be using this as an opportunity to talk about TARP and every other extraordinary step that the government took to rescue the financial system. Obama and the Treasury can remind the banks — and everyone else — about FDIC guarantees, and allowing investment firms to convert into bank-holding companies with cheap access to loans, among many other actions. The banks’ survival — and their ability to make huge profits so soon after they were staring into the abyss — did not start and end with TARP, and neither should their debt to taxpayers be satisfied solely by paying back their TARP funding.

There are plenty of other ways to raise revenue from the banks — including a transactions tax or taxing bonuses — but the administration has been intently shooting those ideas down. Still, the financial services industry, which handles about $50 trillion of transactions per year, can afford to pay higher fees and taxes, in one way or another. So if the administration is going to put its eggs in the “recouping the bailout” basket, it should make sure that the banks can’t portray themselves as victims of an unreasonable levy by reminding everyone just how extensive the effort to save the financial system really was.

Rep. Barney Frank (D-MA) is expected to reveal legislation (possibly today) creating a “resolution authority,” which would enable the government to negotiate an orderly unwinding of large, complex financial firms like AIG, Citigroup, or Lehman Brothers.

The banking industry has already begun to criticize the proposal and Republicans have taken to characterizing it as enshrining taxpayer-funded “bailouts.” Last night, Rep. Spencer Bachus (R-AL), the ranking member on the House Financial Services Committee, and CNBC’s Larry Kudlow went so far as to call resolution authority “TARP in perpetuity,” and “permanent bailout authority“:

KUDLOW: It’ll perpetuate TARP, in perpetuity. TARP will be used to somehow string these institutions along. Is that right, is that fair, is that your question? [...]

BACHUS: It’s a permanent bailout authority.

Watch it:

While it makes sense, politically, to invoke the unpopular TARP to oppose anything that the administration is proposing, Kudlow and Bachus are pretty far off the mark. In fact, resolution authority is meant to ensure that the government doesn’t find itself, as it did last year, having to choose between letting a company’s disorderly collapse ripple through the economy or infusing that company with money to prop it up, indefinitely.

And contrary to Kudlow’s positing, the resolution money will not come from TARP. That said, there is a legitimate question of how it will be raised, and Frank and the administration were looking at two options to find the answer.

The first was having the largest banks pay into an insurance fund that would be used in the event of a failure that required resolution. The second, which Frank and Treasury have reportedly settled on, is having Treasury loan the failing institution money, which will then be recouped from the company’s assets and from a fee on other large institutions, after the fact.

Unfortunately, I think Frank and the administration have this backwards. We already have a system in which the Federal Deposit Insurance Corp. assesses fees on banks, which it uses to pay depositors when an institution fails. I don’t see why a similar system wouldn’t work to build a fund for resolution authority.

The big banks are going to cry foul either way, but at least if they had to pay into a fund, it’d be simple to say that the fee was meant to guard taxpayers against any of them failing. Collecting fees post-failure means that one firm will have to pay for the mistakes of another, directly, with some undetermined formula for how much each institution should pay.

Simon Johnson, professor at MIT Sloan School of Management, said that charging banks after the fact was “a non-starter,” while Rep. Brad Sherman (D-CA) said that “the only way he could vote for the bill would be if it had large insurance premiums levied on the biggest banks.” Indeed, framing the fee as insurance, instead of forcing banks that didn’t fail to pay a penalty, seems like the better way to go.