'Fess Up, Feds: HAMP's a Bust

For government officials and lawmakers, lying comes with the territory. The trick is sprinkling in just enough truth to make the lies seem plausible. And I, beady-eyed citizen like the rest of you, have no problem with that, since we can always vote the bums out.

But the system breaks down when people like senior U.S. Treasury official Herb Allison start slinging whoppers around like a burger-flipper during the lunch rush. He was on Capitol Hill today slathering mayo on the federal Home Affordable Modification Program, which he claims is working just fine.

It's not. Not by the yardstick presented by the White House in announcing HAMP in February 2009, and not by any objective measure of what could reasonably be defined as success amid the nationwide surge in foreclosures. Here's a few of the claims for HAMP Allison expects people to swallow, along with some ever-inconvenient truths:

LIE: "When it was announced last year, the President said the program would 'enable as many as 3 to 4 million homeowners to modify the terms of their mortgages' over the four-year life of the program, enabling these homeowners to modify their mortgages and helping them avoid foreclosure." TRUTH: Although Allison engages in some lawyerly parsing on this point, the government clearly suggested that HAMP would help 3 to 4 million homeowners avoid foreclosure. Against that projected total, Treasury counts any borrower who has been offered a "trial modification" under the program, even though the vast majority of those people will eventually get bounced out of HAMP. Through February, only 15 percent of those trials resulted in homeowners getting a permanent change in their mortgage terms.

LIE: "Today, the financial crisis and the HAMP program have pushed [loan servicers] to modify mortgages, offer customer service at an unprecedented scale and consider other alternative approaches to keeping borrowers out of foreclosure." TRUTH: Numerous studies show that mortgage servivcers favor foreclosure over offering mortgage relief, such as modifying or refinancing loans. That's because, unlike homeowners or lenders, servicers don't lose -- and often make -- money by foreclosing on a property. By contrast, they tend to lose money by easing mortgage terms.

LIE: "HAMP is the first national, standardized modification program -- one that has led the way in setting an industry standard for affordable and sustainable mortgage modification." TRUTH: Homeowners and consumer advocates report wide variation in the standards HAMP-participating lenders and servicers use in determining who's eligible for loan modification. A new GAO report shows that 10 servicers in the program used seven different sets of criteria in assessing whether borrowers qualified for relief.

LIE: "... the [Obama] Administration has consistently strived to not only offer assistance to struggling homeowners but to translate this initial help into sustainable outcomes for borrowers that allow families to remain in their homes or avoid foreclosure." TRUTH: As foreclosures were soaring in 2009, the White House refused to back proposed "cram-down" legislation, which would have allowed bankruptcy judges to order lenders to cut the principal balance on mortgages. Housing experts say that's by far the best way to help homeowners avoid foreclosure.

LIE: "The Administration is on track to meet the stated program goals and -- most importantly -- to help prevent avoidable foreclosures for as many eligible American families as possible."

TRUTH: Only if you change the goals by moving the goalposts. Through February, fewer than 170,000 borrowers out of 1.3 million people, or less than 13 percent, who were offered trial modifications under HAMP have had their mortgages permanently modified. A recent survey shows that less than half of homeowners eligible for HAMP received a loan modification through the program.

Feeling stuffed yet? I am (burp!). To be clear, the problem here isn't the government's intent in helping people keep their homes. HAMP, despite its shortcomings, is an improvement over previous federal programs. The feds deserve credit for doing something.

In this case, though, something isn't enough. According to banking industry data, for every six U.S. homeowners who faced foreclosure as of late last year, only one has succeeded in getting a lender to change their mortgage or offer a trial modification. The conclusion is hard to dispute -- despite the repeated dissembling of public officials, HAMP is unequal to its mission of significantly stemming foreclosures.

Anyone want fries with that?

Image from Wikimedia Commons