Home Affordable Mortgage Program HAMPered…

According to The New York Times, the Home Affordable Mortgage Program (HAMP) is pretty much a failure. HAMP is the Treasury plan to get banks to modify mortgages of people who cannot afford their current mortgages and are in danger of being foreclosed upon.

So far only 15% of those eligible have been offered help and only 9% have actually been helped. The biggest mortgage servicers are some of the banks that were major TARP recipients. At Bank of America (BAC: 17.05 +0.39 +2.34%) only 4% of eligible mortgages have been modified and at Wells Fargo (WFC: 28.46 +0.44 +1.57%) only 6% have been. Citibank (C: 3.7099 +0.1299 +3.63%) and J.P. Morgan (JPM: 41.27 -0.51 -1.22%) have done a somewhat better job at 15% and 20%, respectively.

The apparent reason for the very slow progress is that the program was all carrot and no stick. The program offered banks $1000 for each mortgage they modified, and paid part of the difference between the old and new payments. Congress made sure that there would be no consequences for banks dragging their feet when it killed the proposal to let bankruptcy judges modify mortgages on primary residencies (they already have the ability to do so for the mortgage on the beach house or the ski chalet, but not on houses people actually live in year-round).

Thus if you are falling behind on your mortgage, and find the bank is not very receptive to a modification, you can blame the 13 democratic senators (almost all “Blue Dogs”) who went along with virtually the entire GOP senate delegation in siding with the banks versus the individual homeowner.

Another reason is the change in the mark-to-market rules, which were a result of FASB caving in to congressional pressure. If a bank modifies a mortgage, it will have to reflect this in their financial statements…but they can extend and pretend that a loan is still good if they don’t.

From the borrower’s perspective, the backlog of pending foreclosures is so large that banks have also been very slow to actually take possession. Thus there have been thousands of cases where people simply stop paying and live rent- and mortgage-free for a year or more. That will certainly free up cash for other uses, and is often the most rational course of action for the homeowner, especially if the bank is not interested in modifying the terms of the mortgage. Of course, the homeowner has to live with the uncertainty of not knowing when the sheriff might show up at the door to evict them.