President’s New Mortgage Plan and the Failure of HAMP

Big government and corporations are careful to bury their failures in the fine print. The Treasury Department released its January analysis of the Home Affordable Mortgage Program (HAMP) program. Readers must sift through a large number of statistics to find that only 933,000 homes mortgages have been permanently modified since April 1, 2009. Politicians, the press and housing analysts attacked the results of the report as evidence that HAMP is a failure and that the president’s new follow-up plan will do no better.

The mystery about HAMP is why it has not worked. The Treasury’s January scorecard about the program does not say directly. The president’s new proposal indicates that he thinks one of the largest problems with the old plan was a lack of incentives for banks that hold mortgages. The FHA will guarantee new, refinanced mortgages under his latest program. That should make banks more open to resetting home loans. The risk of the process will be taken off of their books, which it was not entirely before.

The new plan lacks much detail, but its enemy likely will be bureaucracy, as is evident in HAMP’s results. Some 1,775,000 mortgages have been considered for modification, but are still “trial modifications.” That is a lot of “trials” for a program that has run for three years. Either the people with these mortgages were not creditworthy — which begs the question of how they got into the program originally — or they are caught in a process that is so slow it cannot move them quickly to permanent status.

The trouble with large national programs regulated by the federal government, and operated bank-by-bank and mortgage-by-mortgage, is the lack of an efficient way to push millions of home loans through such an unwieldy system. That may be at the core of the failure of HAMP. The lack of permanent modification in the Treasury’s January report would seem to show that is true. It requires a look through the fine print to come to that conclusion, but buried there is the reason for the program’s failure, as well as the likely reason a new program will not work.

Douglas A. McIntyre