Let’s Not Turn Nothing Into Something
by Tim Manni
In February of 2009, President Obama announced the Home Affordability and Stability Plan (HASP). The plan was broken down into three main initiatives: 1)a “low-cost” refinancing program “that will help as many as 4 to 5 million responsible homeowners”; 2)a “stability initiative” designed to modify millions of home loans; 3)a “strengthening” of Fannie Mae and Freddie Mac.
Let’s see here: the touted refi program — HARP — is fading into the sunset (no one even talks about that program anymore — how many homeowners have even used this, does anyone know?), and Fannie and Freddie’s future has been shrouded in a cloud of uncertainty. The GSEs have recently been extended an unlimited amount of taxpayer dollars, suggesting that their future losses will be even steeper than the $400 billion they were originally promised.
The only program left standing with any significance or attention being paid to it is the Home Affordable Modification Program (HAMP). Despite its well-documented failure at preventing many foreclosures, HAMP not only remains the central tool for improving the housing market, but some are even beginning to claim the program as a success. However, this “success” is coming from an unintended consequence of the program.
In this regard, let’s be careful that we don’t begin to turn nothing into something.
HAMP, which was originally designed to modify the conditions of a home loan — including the term, balance, and/or interest rate — to promote continued affordable home ownership amid difficult market conditions. However, it’s now being praised as a stabilizer of home prices, and “a vehicle” for delaying foreclosures, as though these were the goals of the program:
But some analysts say the program is a success in one sense: By slowing the flow of foreclosed homes to the market, it has helped prop up housing prices, at least for now. The administration’s Home Affordable Modification Program, or HAMP, and other state and federal efforts to avert foreclosures have helped “buy time” for the housing market, preventing steeper home-price declines, said Ajay Rajadhyaksha, a managing director at Barclays Capital in New York.
The official goal of HAMP is to reduce monthly loan payments for distressed borrowers so they can afford to stay in their homes. But housing analysts at UBS Securities in New York, in a report last week, described HAMP as “a vehicle to delay the timing of new foreclosures hitting the market.”
Creating a Bad Habit
Changing HAMP’s concept and measurement of success is a bad habit that we should stop ourselves from getting into.
HAMP was NOT designed to delay foreclosures, it was designed to prevent them. In his speech in Phoenix, Arizona on February 18, 2009, the president said that the modification program would target “…loans at risk of default and foreclosure.” The executive summary, which was made available to the media the very same day (yet is no longer available), specifically described the modification program as a tool to provide stability to “at-risk homeowners,” not borrowers who have already defaulted.
In the Name of Success
We hope that the same course of action taken with the Troubled Asset Relief Program (TARP) won’t happen with HAMP. The reactionary policies that continue to chang the purpose of TARP several times, the latest in the form of the “financial crisis responsibility fee,” could very well happen to HAMP, all in the name trying to claim any kind of success for a flawed program. Keep your eyes peeled for more claims about toting the “success” of HAMP as a tool to delay foreclosures or some other unintended benefit — even though that isn’t what the program is intended to do.
