Obama vs. Mortgage Servicers: It's Like Preemptive Surrender All Over Again
President Obama surprised Cub Scouts on a special tour of the White House today by suddenly leaping onto a West Wing table and shrieking, "If loan servicers continue to mess with homeowners facing foreclosure, I will crush their pointy banker heads like grapes!"
Pop, end of dream sequence. Back in reality, the Treasury Department meekly slapped Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) yesterday for their lousy performance working with homeowners under the federal Home Affordable Modification Program.
Actually, it's not even a real fine. The agency is only withholding a total of $24 million in payments due to the banks under HAMP, which the Obama administration launched in 2009 to combat a surge in foreclosures caused by the housing crash. If the servicers fix problems with their loan-mod practices, they'll get the money. And if they don't fix them, that sum is peanuts for these companies.
The upshot, according to a former government inspector general whose duties included monitoring HAMP:
"All this appears to be is that, after the servicers seemingly violated their agreements with Treasury with impunity, Treasury's sole response is to give them a temporary time-out before paying them in full," said Neil M. Barofsky, the former special inspector general for the Troubled Asset Relief Program.Why HAMP is a bust
HAMP has been a virtually total washout, as the government's own watchdogs have documented. The voluntary program was poorly designed from the outset. It left servicers with a stronger financial incentive to foreclose than to offer mortgage relief. Applying to the program was a nightmare, with homeowners repeatedly having to send the same paperwork and forced to deal with a dozen or more bank employees. The process could take months, or even years.
Servicers are also known to milk borrowers seeking a modification, often advising them to default and then tacking on hefty fees, before rejecting them with little explanation. Servicers have even been allowed to foreclose on people approved for help under the program. Financial firms flout HAMP's guidelines almost at will.
As a result, fewer than 700,000 permanent loan modifications have been granted under HAMP, which is less than the number of people who have been bounced out of the program. When Obama introduced the initiative in February 2009, it was expected to help 3-4 million homeowners.
No bark, no bite
Shockingly, the government claims to have no authority to make servicers comply with HAMP, under which they are paid for loan modifications. Now the feds say they have no real way to sanction financial firms found to have violated the program:
"We don't have the power to impose fines the way a regulator would," Tim Massad, Treasury's acting assistant secretary for financial stability said in a conference call with reporters Thursday.Funny, Treasury seems to have no shortage of authority when it comes to running interference for Wall Street banks in need of a taxpayer handout. And doesn't Treasury Secretary Tim Geithner head the Financial Stability Oversight Council, the new panel of government regulators formed in part to oversee financial firms? It's laughable that a top official with the agency, which in fact has immense power over financial institutions, should feign such helplessness:
"It further reaffirms Treasury's long-running toothless response to the servicers' disregard of their contract with Treasury, and by extension, the American taxpayer," added Barofsky.Correct. It also reaffirms Treasury's own disregard for homeowners.
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