HAMP Program A Failure Or Success?

The Treasury Department released its April report on the progress of HAMP, a program to modify mortgages so that people can stay in their homes. The first reaction by the media and most analysts is that the effort is a failure. The program has posted 295,348 permanent mortgage alterations.  But, many of the 1,214, 805 trial loans started are still in limbo. Of those, 277,640 have been canceled.  A number of people have defaulted on their new mortgages, perhaps because their homes are underwater, or perhaps because they never had the money needed to pay any mortgage. Unemployment has almost certainly contributed to the problem.

The problems are severe from the standpoint of the program’s goals. The number of eligible delinquent loans is 3,275, 249, so the impact of the plan has been very modest.

The government has not had the organizational skills or sense to set up upfront documentation of borrower’s financial situations. The Treasury has set up a program to do that beginning June 1. The past lack of documentation is likely to have contributed to the program’s inability to permanently modify more mortgages.

HAMP may not be a total loss, and it may actually still be successful The government’s list of financial firms involved in the program includes large banks such asJPMorgan Chase (NYSE JPM), Wells Fargo (NYSE: WFC), and Bank of America (NYSE: BAC). Clearly these banks have the financial wherewithal to extend more loans. They are probably reluctant to do so because of the poor credit quality of the mortgages.  But, the government could do more to underwrite potential losses from the mortgages, and, the Administration has not done as much as it might to push that biggest banks to be more aggressive in their support of the program. In other words, the Treasury has provided the means for the program to work but no incentives to financial firms to do their parts–either positive or negative.

It is easy to dismiss the problems and slow progress of HAMP, but it is not impossible to find ways to quicken the progress. The government has shown so far that it does not have the will to do so although it clearly has the way to.

Douglas A. McIntyre