Another Visit with the Home Affordable Modification Program

It is time to revisit a topic we have been looking in on every few months for the past year. I am referring to the government’s program to help people stay in their homes through modifying the terms of their mortgage.Upsidedown House attrb Stopmangohome

When the program was first announced to great fanfare in March, I observed that nobody outside the Treasury seemed  to think it would work. Only two months later I had a little fun pointing out how, even by then, it was pretty obvious it was going to miss its unrealistic goals by at least an order of magnitude. By July I was writing about the inevitable finger-pointing that followed the revelation that a program nobody believed in was not, in fact, working very well.

Of course, the Home Affordable Modification Program is still running, and still bravely defended by administration officials with a straight face. And they sure are brave. Last week The New York Times told us that U.S. Mortgage Plan Aided 7 Percent of Borrowers. That figure, apparently, refers to 7 percent of the 853,696 borrowers enrolled in the program, not 7 percent of all borrowers.

That sounds bad enough, but then on Wednesday the Wall Street Journal ran an opinion piece by the CEO of ING Direct USA that put the success rate at only 1%. (His calculation is the number of completed permanent modifications divided by the estimated number of eligible borrowers.)

All of this is fairly predictable, and was indeed widely predicted here and elsewhere. Despite periodic promises from the administration to pick up the pace and/or threaten mortgage servicers with unspecified punishments if they didn’t make it work, the program has been limping along like this since day one.

What is a relatively new development is the dawning realization in certain circles that maybe the whole thing was a bad idea to begin with. Not just that the mechanics of the program were poorly thought through. (Which is true.) Nor that it was founded on the flawed premise that most homeowners facing foreclosure could very nearly afford their houses and just needed a tweak to their mortgage terms. (Also true.)

The new revelation for the Yes We Can Crowd is that maybe the goal of the program was misconceived. Saving a home from foreclosure may be a good thing for the family that gets to live in it (and even then, depending on the terms, maybe not) but it might not be good public policy.  It is just possible that this particular corner of the free market wasn’t all that broken after all.

The very lightly read January 1 edition of the Times carried the item U.S. Loan Effort Is Seen as Adding to Housing Woes. Permit me to quote liberally:

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.


Behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

I’m the sort of guy that thinks the free market mostly works and requires government intervention only in exceptional cases. So I have little sympathy with Obamaites who tend to the opposite assumption, that the free market generally does not work and usually needs government intervention. 

Yes, hindsight is 20/20 and tragic flaws are rarely as obvious in real time as they are after things go awry. But seriously folks, this particular tragic flaw isn’t all that subtle.

And it is not as if the goal of the program went unquestioned at the start. For example, see the March 9th post What’s So Bad About Foreclosure? at All Financial Matters.

The core problem is that the people who thought HAMP (or something like it) would be a good idea were blinded by their own ideology. They could only see consumers as well meaning, responsible, and thoughtful, if a bit naive. Businesses, on the other hand, were greedy, incompetent, and cloddishly destructive in their efforts to make more money. So, of course, what was wrong here was that the corporations tricked the wholesome consumers into mortgages they couldn’t, quite, afford. If only the mortgage companies could be cajoled into being a touch more reasonable everybody would be better off. Problem solved.

Alas, it turns out that it was not the mortgage that was unaffordable, it was the house. It is a bitter pill to swallow, but the best way, perhaps ultimately the only way, to make home more affordable for some is to get them into less expensive houses.

[Photo: Stopmangohome]

No Comments

  • By Jim, January 22, 2010 @ 7:35 pm

    Going off on a little tangent…

    THe ING CEO editorial says :
    “Yet since the start of the recession in 2007, more than five million homes have been taken back by lenders. The Center for Responsible Lending estimates that as many as 13 million more homes could fall into foreclosure over the next five years.”

    That 13M number really smells like numerical fiction to me. Of course its just an estimate of what might happen but it doesn’t seem realistic.

    The number is cited here:

    They cite a Goldman Sachs report as the source for it and of course that report is nowhere to be found. So who knows what GS actually meant.

    As of 2007 there were only 48M homes with mortgages. 11M of them had principal balances of less than $50k. 7M of the loans were FHA/VA loans. 36M had 20% of equity or better. 37M of them were fixed interest loans. Theres overlap between these figures and those were the 2007 stats so things may be worse now. But didn’t he also say 5M people lost their homes already? I can’t see 13M people MORE going into foreclosure from where we are today.

    Course you could debate if he’s talking about going into foreclosure meaning getting a notice of default or if he means actually losing a home to foreclosure. Getting a default notice and actually losing a home aren’t the same.

    He also says:
    “mortgage servicers have reached out to these borrowers, initiating the modification process”

    Is that really happening? Mortgage companies are initiating the modification? I haven’t heard of that. I’ve heard of people calling their mortgage holder to request modification and being told they’d have to wait weeks or months for anything to be done since the lender is too backlogged. I don’t mean this to be sarcasm, but what he’s saying doesn’t match what I’ve heard elsewhere. I’m honestly not sure which is true or if both are.

  • By john wright, May 1, 2010 @ 3:46 am

    Look! One of the little Piggies was before a commission on 04/09/10. ! Guess what he said in regards to himself and his management team? “We all bear responsibility for not recognizing this, and I deeply regret that”

    My Answer:
    NOT HALF AS MUCH AS WE ALL REGRET WHAT YOU DID! I mean after all, I am sure his mega mansion is not in threat of foreclosure. I wonder if the CEO of Bank of America and Citigroup live in the same neighborhood? Because I know they do not live in ours after I read this:

    “Prince left the bank in 2007 with almost $40 million in bonuses, shares and options. Citigroup paid Rubin more than $120 million for his work at the bank over several years.
    Bad bets on repackaged debt securities, consumer loans and other assets forced Citi to take three separate government rescue packages totaling $45 billion, more than any other major bank. When the dust settled, taxpayers held about a third of Citigroup’s common stock and $27 billion of its debt.” See guys, shameless luxury! (Yahoo News)

    My Answer: See! They did too do modifications! THEY MODIFIED THEIR INCOME! So lets not say they did not do any modifications.

    Here Comes The Apology!:
    “Chuck” Prince, former chief executive of Citigroup, apologized for his role in the crisis that roiled the U.S. economy.” (Yahoo News)

    My Answer:
    Does that mean if Bin Laden apologized, we will forgive him and he can go back to his palace too? Because the last time I checked, Bin Laden played a part in a crisis that roiled up the U.S. economy.

    What did the Commission Think Of His Testimony?
    “Some members of the Financial Crisis Inquiry Commission — charged by Congress with explaining the origins of the worst U.S. financial crisis since the Great Depression — did not buy the two executives’ half-hearted mea culpas.” (Yahoo News)

    My answer:

    “Vice Chairman Bill Thomas pushed the Citi executives for some explanation of how they personally square the bank’s financial calamities with their own lavish compensation packages, “saying, “Behavior has to have consequences.” (Yahoo News)


    Did you hear that Bank of America? “BEHAVIOR HAS TO HAVE CONSEQUENCES”
    If it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!

    BofA and it’s CEO Brian Moynihan reminds me of that song by John Lennon and George Harrison titled “Piggies” I invite you to listen to this song on youtube and see if it appropriately fits.

    Have you seen the little piggies
    Crawling in the dirt
    And for all the little piggies
    Life is getting worse
    Always having dirt to play around in.

    Have you seen the bigger piggies
    In their starched white shirts
    You will find the bigger piggies
    Stirring up the dirt
    Always have clean shirts to play around in.

    In their ties with all their backing
    They don’t care what goes on around
    In their eyes there’s something lacking
    What they need’s a damn good whacking.

    Everywhere there’s lots of piggies
    Living piggy lives
    You can see them out for dinner
    With their piggy wives
    Clutching forks and knives to eat their bacon.


    Please join my fight and show your support through your comments at

    Divided we might have fell America, but united we must stand!


  • By Marsha Killington, Colonial Heights VA, May 14, 2011 @ 8:14 pm

    All Americans have a God-Given Right to a house exactly twice as expensive as they can afford. It’s the solemn duty of the Government to facilitate this. Who finances the Government again? Oh right, the Chinese. Thanks, Chinese!

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