President Obama's two programs to keep mortgage borrowers in mortgaged homes have failed, but post-mortems from the mainstream media refuse to say why. Instead, whole books have treated the programs' execution, without considering the possibility that the Home Affordable Modification Program (HAMP) and Home Affordable Refinance Program (HARP) failed because they were designed to do the impossible.
Bloomberg's Clea Benson takes the wayback machine to 2009, and reveals that the HA'Ps did not, as advertised, avert 9 million foreclosures, support home prices in most states or budge the percentage of underwater borrowers, which remains stubborn at 23 percent. CoreLogic examines its most recent data and finds
that 11.1 million, or 22.8 percent, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011. This is up from 10.7 million properties, 22.1 percent, in the third quarter of 2011. An additional 2.5 million borrowers had less than five percent equity, referred to as near-negative equity, in the fourth quarter. Together, negative equity and near-negative equity mortgages accounted for 27.8 percent of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter. Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.
Several of these numbers are unchanged from 2009, when the Obama Treasury Department deployed its $75 billion Homeowner Affordability and Stability Plan (HASP), which encompasses HAMP, HARP and Home Affordable Foreclosure Alternatives (HAFA).
Benson puts a brave face on the lifeless performance of government loan modification, for example by repeating the administration's vague claim of having "reached" [pdf] more than 2 million borrowers. But Treasury admits [pdf] that just under 600,000 loan mods have been canceled, and 20 percent of successful modifications end up back in default.
The Office of the Comptroller of the Currency is behind schedule in releasing the first quarter 2012 Mortgage Metrics Report, but here's my own finding about the most recent report:
As you can see from the latest OCC/OTS Mortgage Metrics Report [pdf], modifying loans continues to do what it did in 2009, 2010, 2011 and earlier this year – drag out the pain of mortgage default without doing much to keep bad borrowers in the homes they don't want to pay for. Redefaults (starting at page 34) are ticking back up across all categories. That goes for both voluntary modifications and loans modified under the Home Affordable Modification Program (HAMP).
One bright spot for the government is that the redefault rates for HAMP and HARP loan mods are lower than the redefault rate for all loan mods. (Disclosure: I am currently in paperwork turnaround trying to refinance my home under HARP.)
Benson tells us what went wrong:
While his plan was undermined in part by the weak U.S. economic recovery, it also lacked broad and aggressive measures.
Other than a to-be-sure from George Mason University Prof. Anthony B. Sanders, the rest of the article describes how HASP, like all stimulus, would have worked if it had only been big enough.
Benson's diagnosis is a trove of governed-economy chestnuts:
The Consumer Financial Protection Bureau, for example, hasn't yet defined which mortgages are considered consumer-friendly and which are considered abusive.
Benson blames banks for raising their standards:
Uncertain about their liability for vetting borrowers, lenders have raised credit standards to new highs, shutting out some would-be buyers of distressed properties.
And Benson recalls one thing worth remembering: that HAMP has spent only a small fraction of its total earmark:
Obama pledged to use $50 billion from the $700 billion bank bailout approved by Congress in 2008 to help homeowners. Only about $3.7 billion of that has been spent.
That's good news. Since 2007, the Fed-Treasury axis has been trying to prop up of house prices. Now HousingWire asks whether that goal might be achieved through negative equity. When that fails, the tool of choice will be mortgage cramdowns using taxpayer money. "Most importantly, every place we can responsibly do something to help homeowners and help heal the market, we're going to take those steps," says Special Economic Assistant Brian Deese, who assists the president in economic matters.
Benson's post-mortem contains other morsels and is a good cheat sheet to the summer real estate slaughter. In Marxist term, Bloomberg and other news institutions are treating the superstructure while ignoring the base, but worse pieces have been written about the HA*Ps.