Are Loan Modifications a Government Scam?
The Obama admistration has done home owners and everyone else a great disservice by making great announcements about how they were going to help distressed homeowners in Hollywood and elsewhere. HAFA and HAMP were both set up with the pronounced aim of getting loan modifications. Every distressed homeowner in Hollywood thought that they were going to get a big break on their mortgage. Thousands turned out last week for the NACA marathon event at Palm Beach Concention Center to get a break.
What is the reality? Are you ready for a quick history lesson? The first loan modification scam was the loan modification companies. Two or three years ago, everybody in Hollywood was trying to get into the loan modification business. There were so many scams with companies collecting large fees up front and then not getting any results for the home owners. As a result, the government has had to pass a law to prevent up front charges. Nearly all these companies have gone out of business.
Then came the big bailout of corporate America. It was clear that the country was run by big business as all the money went to Wall St, not Main St. Howver, to appease the masses, the government had to appear to be helping and so they introduced the HAMP program with that wonderful sugar coated name – Home Affordable Modification Program. Home Affordable? Tell that to all those Hollywood homeowners who couldn’t get loan modifications, or they were so small as to be useless.
The results? Nearly 521,000 trial modifications have been cancelled and over 60% of those have been trials for six months or more. Only 398,000 borrowers have been converted from trial loan-mods to permanent workouts. Over 45% of cancelled trials are now in a an alternate modification program offered by the servicers. But, of those, at least 6% are still falling back into a 60+ day delinquency status.
HAMP has been crticised by so many commentators. Editors of National Review Online complained that it was “designed to benefit Fannie Mae and Freddie Mac shareholders, not the great majority of Americans struggling with their mortgages.”
Neil Barofsky, the special investigator in charge of overseeing TARP spending, recently critcised HAMP for its cost of $50 billion without rreally knowing how many people it would help. He also noted that HAMP “has not put an appreciable dent in foreclosure filings,” because, among other reasons, more people have failed than been helped by the program.
And what have Treasury officials recently admitted? They said that it was useful because it slowed down the foreclosure rate. So many people who tried to do a loan modification ended up being deeper in the hole, but for Teasury officials, this was still useful.
Duncan Black, who blogs as Atrios, wrote, “Conning homeowners by announcing a government program designed to help them when in fact it was designed to help the banksters is, in my world, ‘cruel.’”
Mike Konczal at Rortybomb, who attended the briefing, wrote, “The narrative seemed to change from helping homeowners to spacing out the foreclosures. I asked them to repeat it, because the idea that billions of taxpayer dollars are being spent to smooth out foreclosures for banks struck me as new narrative — it’s explicitly extend-and-pretend, and also fairly cynical.”
According to Stephen Spruiell, “Obama effectuated a “cynical” and “cruel” bailout of Fannie and Freddie under the guise of a compassionate mortgage-modification program?”
He also argued that, even worse, “The administration’s program created an incentive for underwater borrowers who weren’t yet behind on their mortgage payments to fall behind on purpose in order to qualify for a modification under HAMP. An aide to a Republican congressman tells NRO, “People who could have made their mortgage payments end up three months behind, and they can never recover from the penalties and late fees, so they end up in worse shape than if the program had never existed from the outset.”
So – Version 2 – HAFA Home Affordable Foreclosure Alternatives. Still promising affordability. For the banks, it is a voluntary program. Check it out but don’t get your hopes too high.
Much of the content of this article comes from NPR http://www.npr.org/templates/story/story.php?storyId=129397483
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