Times Finds Unmet Expectations for HAMP

An article in the March 30th, 2011 New York Times looks at a Treasury effort at the heart of the Obama administration’s foreclosure-prevention effort, the Home Affordable Modification Program. The program is widely considered to have fallen short of expectations, and the House of Representatives voted this week to eliminate it. In their investigation, the Times examined eight cases where
homeowners seemed to qualify for
the program yet still have not been able to obtain a permanent modification despite advocacy by Staten Island Legal Services.

From the piece (which can be found in its entirety at NYTimes.com):

Last summer, as President Obama’s
premier plan to save millions of Americans from foreclosure foundered,
the administration tossed a new life preserver to homeowners.

Officials unveiled a $1 billion program to offer loans to help the
jobless pay their mortgages until they could find work again. It was
supposed to take effect before the end of the year, but as of today, the
program has yet to accept any applications.

“We wait and wait, and they keep saying it’s coming,” said James Tyson,
50, a Philadelphia homeowner who lost his job a year ago.

That could be an epitaph for the administration’s broader foreclosure
prevention effort, as tens of billions of dollars remain unspent and
hundreds of thousands of homeowners have been rejected. Now the
existence of the main program, the Home Assistance Modification Program,
is in doubt.

Saying it is a waste of money, the Republican-controlled House voted on
Tuesday night to kill the foreclosure relief program. The Senate, which
the Democrats control, will pursue a rescue. But Democrats, too,
consider the program badly flawed.

The effort has failed to stanch a wave of foreclosures and a decline in home prices, which have fallen for six consecutive months and are now just barely above their recession
low, according to a key index updated on Tuesday. All of this threatens
the fragile economy, which is also being buffeted by foreign crises.

“The banking industry fought us tooth and nail, and we ended up with a program that is failing homeowners,” said Representative Zoe Lofgren,
a Democrat from California. “The administration doesn’t give us real
enforcement or answers; we just get the old yokey-doke.”

Yet the need remains great. There were 225,000 foreclosure filings
in February, according to RealtyTrac. About 145,000 homeowners are in
trial modifications under the Obama program. An examination of federal
documents and lawsuits, and interviews with legislators, state attorneys
general, housing counselors, homeowners and regulators, reveal a
federal mortgage modification program crippled by weak oversight,
conflicts of interest, mind-numbing complexity and poor performance by
many participating banks.

The Times finds that one of the major obstacles for the program has been the lack of incentives for banks to participate. 

When the newly elected Obama administration drew up program guidelines,
officials concluded they could neither force servicers to participate
nor fine them for poor performance.

This, critics say, was a mistake.

“The banks were so despised, and TARP was so front and center, you could
have actually done something,” said Katherine M. Porter, a visiting law
professor at Harvard. “In the midst of real boldness in bailing out the
banks, we get this timid, soft, voluntary conditional program.”

Treasury officials say this is an unfair accounting. In those harried
days in early 2009, no one knew how much stress near-insolvent banks
could withstand. And officials tried to fine-tune the mortgage program,
adding elements and redirecting unused billions of dollars into the most
distressed regions.

Each new version, however, added layers of complication.

Administration officials also cite unrealistic expectations, saying they
underestimated the complexity of modifying millions of troubled loans.
“I wish the three to four million had never been uttered,” said Peter
Swire, a former special assistant to Mr. Obama for economic policy.

Critics wave off such arguments. The Obama administration, they say, could have flexed its muscles.

The president could publicly challenge bank officials. Treasury
officials could withhold payments. The administration could buy troubled
mortgages at a discount and modify loans on its own.

“We needed to go out and fine the five worst offenders,” said a former
administration official familiar with internal discussions, who was not
allowed to talk publicly given his current position. “In hindsight, I’m
almost certain we would have been well served by taking the risk and
being challenged in court.”

Among those who have been disappointed by the program are Staten Island Legal Services clients Eric and Annette Padilla, who spoke to the Times about their struggle.

In Staten Island, The New York Times examined eight cases where
homeowners seemed to possess the income and credit scores to qualify for
the program. Yet after months of trying, even with the help of Staten
Island Legal Services, not one has obtained a permanent modification.

Any single case speaks as eloquently as another.

Eric and Annette Padilla bought their home in 2003. Then Mr. Padilla
fell ill and Ms. Padilla quit her job to care for him, and the couple
fell behind on their mortgage in 2009. (Their income dropped to less
than $60,000, from $96,000.)

They applied for the program through their bank, HSBC,
and received a three-month modification. They made the payments on
time. In August 2009, they requested a permanent modification.

The Padillas called the bank every week. One representative said their
file was incomplete, another asked for more documents, a third said the
documents were there all along.

In September, the bank said their documents had “become stale” and told
them to resubmit. Eventually, they were given a new temporary
modification. Once again they made every payment on time.

In January 2010, they sought another permanent modification. Then they heard back from HSBC: denied. The reason? The couple had overpaid one month.

Last summer, HSBC filed papers to foreclose against the Padillas. For
Mr. Padilla, 41, the house was his step out of the housing projects; he
has no intention of surrendering.

“I ask myself sometimes, why is this happening?” he says. “Wasn’t this program set up for hard-working people like us?”

Click here to read the full article.