HAMP: The Obama Administration and The Banks’ Love Child
When the economy was hit hard, the people turned to their government for help.
Economists stated that during the period from 2007 to 2009, the bottom 90% of Americans experienced the loss of one-third of their wealth, most of which was concentrated in their homes. After the housing market collapsed, millions of Americans were hurt deeply, and looking for financial healing. They turned to their government for help.
Cram Down: A Policy For the People
The government had a couple of solution plans drawn up to try to help those who were hit hardest by the recession: homeowners. The first of which, largely supported by Obama during his campaign for the presidential election, was “cram down.” Cram down gets its name from the action that the bankruptcy judge may take in reducing or eliminating debts that a borrower cannot pay; it is a common practice in bankruptcy court. In the context of foreclosure, it would force down the value of the debt to the value of the home; the logic of this being, the bankruptcy judge can write-off or reduce the debts that the homeowner cannot pay off– allowing an underwater homeowner to keep their home when they normally wouldn’t be able to.
HAMP: A Protection Plan For Financial Institutions
A number of legislators and citizens alike supported cram down as a way to remedy the foreclosure crisis. It was a plan for the people, and in the homeowner’s best interest. But, ultimately, nothing was done to get it passed. Obama dropped the idea in favor of a different policy, the Home Affordable Modification Program (HAMP).
While cram down was a plan for the people, HAMP was a protection plan for the financial institutions. HAMP was born out of negotiations between Obama’s economic team and the financial industry. Notice how I said the financial industry; homeowners were nowhere in sight, their interests and needs were not heard. But, what rang through loud and clear in these discussions were the wants and needs of the banks.
All Of The Power In The Hands Of The Banks and Loan Servicers
HAMP granted all of the power to the financial institutions. Mortgage companies were offered small incentives to modify loans for borrowers who were susceptible to going into foreclosure. But, at the end of the day, it was the mortgage companies who decided whose loans to modify (not the bankruptcy judges who were arguably much less partial in the situation). As it turns out, it was not in the mortgage companies’ best financial interest, to modify homeowners’ loans. These companies were able to increase their revenue if they kept homeowners in limbo, and eventually allowed the loans to default and proceed through to foreclosure and the eventual auction of the home. This practice allowed them to keep collecting payments and charging the homeowners various other fees, while on the outside giving the appearance of helping them.
To read more about the scandalous activities of loan servicers and the corruption that went on behind the scenes, read: ( Loan Servicers: The Face Of Corruption).
And to compound the issue of it not being in loan servicers’ best interest to give loan modifications, the problem was only worsened by the strict protocol that the mortgage companies only approve of borrowers they deemed deserving. The Treasury Department, who pulled the strings of their puppets, the banks/servicers, made it very clear that the loan services must only reward those who were “deserving” of loan modifications (known as a “hardship”).
HAMP: A Band-Aid For The Financial Crisis, Not A Real Solution
To the government, HAMP was merely a band-aid for the financial crisis; for a short period of time, it retarded the progression of foreclosures. And to the added benefit of The Treasury and financial institution as a whole, it gave banks the power of controlling the timing of foreclosures, so that millions of homes were not foreclosed upon at the same time, allowing them to absorb their inevitable losses at a slower rate. To them, even though there was chaos, at least it was controlled.
Journalist, David Dayen, stated that in a period of 5 years from the time that the policy was put into place, it only helped one-tenth of at-risk homeowners avoid foreclosure; at a time when over 10 million were at risk of losing their homes to foreclosure (to read more from Dayen at Bill Moyer’s site, click here).
Today, the red tape and corruption still lingers. Homeowners continue to struggle obtaining loan modifications, being bounced around to different departments, constantly sending in the same documentation and still getting denied even when they qualify. HAMP, the solution designed to help homeowners continues to plague them. This especially holds true to those still dealing with old loans from the time Pre-Recession, many of which continue to be problematic 8 years later. It can still be exceedingly difficult to get a loan modification, many loan servicers continue to make it extraordinarily difficult.
From the time of its conception, the solution that the government and financial organization came up with was never to benefit individual homeowners; it was a scapegoat when the alternative cram down policy would’ve caused too much financial loss for the banks.
But, who looks out for the middle class then? Those who suffered the greatest financial hardship when the recession hit?