Gorilla's Blog

What a surprise, the US mortgage loan modification program has worked about as well as the US behavioral modification program in Afghanistan.

“The re-defaults signal the worst form of failure of the HAMP program: billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures,” the report said, referring to the Obama administration’s $75 billion Home Affordable Modification Program.

“When the total picture of HAMP is taken into account, low conversion rates plus potentially high redefault rates mean that the total number of sustainable, permanent modifications generated by HAMP will be quite limited,” the report said.

The problem is simple: house prices have not yet reached bottom, banks don’t want to modify loans when value can’t be ascertained, banks don’t want to report very large losses on their loan portfolios, 25% of homes are underwater and unemployed homeowners have little chance of remaining current on whatever mortgage they’ve got.

The solution is also simple: allow bankruptcy court judges to reduce principal and modify loan terms, thus forcing the banks to make deals and recognize losses.

The solution’s already been turned down twice in Congress, so we’ll just have to wait another year or two until prices hit bottom and/or the economy begins to recover.

Gorilla says: “Time to tamp down the HAMP!”

A total of 31,000 permanent mortgage modifications under the Administration’s Home Affordable Modification Program (HAMP)!

This figure demonstrates that the program has been a total failure.

The redefault rate on temporary mods is over 50%, and of course the number of homeowners facing foreclosure and/or being under water is in the millions.

Clearly, the banks aren’t interested in refinancing homes when banks themselves are carrying huge losses and there’s little confidence in home valuations.

Prices will have to fall some more before the inventory gets cleared out, and this could take years.

The best solution has always been to allow bankruptcy judges to reduce principal on existing mortgages. In this way, homeowners could stay on, more than likely as renters, until the economy recovers.

But Wall Street defeated that idea in Congress.

It remains to be seen whether the bankruptcy approach will be revisited, now that taxpayer bailed out banks are basically hoarding cash, refusing to extend credit, paying themselves well, and saying “fuck you!” to our leaders and communities.

Gorilla thinks: “That’s why the HAMP’s a chump!”