Issue Position: Housing

Issue Position

HAMP - Home Affordable Modification Program

The U.S. Treasury should end the failing mortgage modification program costing taxpayers $75 billion.

In July 2010 I called on the Treasury Department to end the much maligned Home Affordable Modification Program (HAMP) that has so far rejected and pushed more homeowners closer to foreclosure (436,053) than it has helped through permanent modifications (346,816).

In my letter to the Treasury I wrote, "Over the course of five hearings of the House Committee on Oversight and Government Reform, we have heard bipartisan, near-universal acknowledgement from every observer outside the Treasury Department that this massive government intervention is simply not working.

"The evidence of HAMP's failure is overwhelming, and it points to only one conclusion: the program should end immediately."

In 2009, President Obama predicted that HAMP would allow 3 to 4 million homeowners modify the terms of their mortgages to avoid foreclosure but the program has fallen far short of this goal. Independent investigations by the Government Accountability Office (GAO) and the Troubled Asset Relief Program (TARP) Inspector General (IG) have found that the Treasury Department has poorly managed the failing program.

Mortgage servicers testified that most, if not all, of the borrowers who received modifications funded in part by taxpayers through HAMP would have qualified for modifications through the servicers' private programs if HAMP did not exist. Even many of the homeowners who were kicked out of HAMP received assistance from the servicers' private programs. According to Treasury data, almost half of the borrowers kicked out of HAMP were able to receive assistance through an "alternative modification." Under HAMP, taxpayers forced to continue funding a program that squanders their money by providing incentives to banks to modify mortgages that they would have modified anyway.

The Hardest Hit Fund

On February 19, 2010, President Obama announced the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (the "Hardest Hit Fund"), to turn over $2.1 billion in borrowed bailout funds to state housing finance agencies ("HFAs") in selected states.

The Hardest Hit Fund displays the same lack of transparency, waste, and poor planning as do the other foreclosure-mitigation programs being administered by the Department of the Treasury. The proposals that have been released by HFAs reveal that Hardest Hit Fund monies, if spent as the agencies are proposing, will almost certainly be wasted. The programs being proposed by the HFAs will fail to help many homeowners and likely leave some worse off.

For example, the California Housing Finance Agency's ("CalHFA") proposal to spend the majority of its $700 million Hardest Hit Fund allocation -- over $419 million -- on a mortgage principal reduction program that, by design, will assist only 5,500 homeowners. The program will not provide assistance to bring loan to value (LTV) ratios lower than 125%, which means that even the few homeowners assisted will remain deeply underwater, with a high statistical likelihood of default and a strong incentive to abandon their mortgages later. The experts most qualified to judge foreclosure-mitigation programs are the community organizations that counsel distressed borrowers and help them to navigate the Byzantine regulations of Treasury's and the states' assistance programs."

The Mabuhay Alliance, of San Diego, has worked directly with thousands of homeowners and has helped these clients to achieve a far lower-than-average redefault rate in Treasury's Making Home Affordable programs, and has grown to understand which programs work and which do not. The Mabuhay Alliance recently wrote to CalHFA requesting that the principal reduction program be reconsidered:

…[T]he principal reduction, even if all goes well (including full matches by the financial institutions), may be the wrong decision for families deeply underwater. It will prolong a futile hope…

California's $700 million spending plan is not only wasteful but also uncoordinated. For example, CalHFA has admitted it has no idea how its programs would be coordinated with existing federal ones, such as HAMP.

These problems are compounded by the Department of the Treasury's lack of transparency and accountability. Treasury's guidelines for the state HFA proposals call for "innovation," but are vague enough that programs which substantially duplicate existing federal and private ones -- as several of California's do -- appear to qualify. Treasury has not clarified what it considers to be "innovation," has not published the state HFAs' proposals, and has not solicited or accepted input from the public and Congress on the best use of these taxpayer funds.

The American people have a right to know whether the unprecedented debt spending their government authorized in 2008 is being wasted.

In May 2010 I sent a letter to Treasury Secretary Timothy Geithner criticizing the Treasury for "its lack of transparency and take small first steps toward public accountability to ensure that Hardest Hit Fund dollars are spent on genuinely innovative, locally-driven programs that will maximize the help to borrowers.

The Government's Housing Policies Helped Create the Financial Troubles of 2008

The spin on the financial crisis by those who favored government efforts to erode lending standards is that the housing bubble didn't cause this recession. A report released by the House Committee on Oversight and Government Reform finds otherwise.

The housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market. The findings in this report should remind this Congress that ignoring the role of politics and government in causing the housing crisis and the economic collapse while pursing other regulatory reforms will not fix the underlying problem.

Government intervention, according to the report, "created "affordable' but dangerous lending policies which encouraged lower down payments, looser underwriting standards and higher leverage. Finally, government intervention created a nexus of vested interests -- politicians, lenders and lobbyists -- who profited from the "affordable' housing market and acted to kill reforms. In the short run, this government intervention was successful in its stated goal -- raising the national homeownership rate."

Financial industry reforms must include changes to underlying federal policies.

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