New at Reason: The Revamped HAMP and Some Corrections for the Record

Over at, I have a piece today commenting on the revamped HAMP (coming on the heals of “new” new changes to HARP) program announced by the White House last week. Some of the changes include:

  • Second homes are now eligible to get a modification. This means investor owned homes. The guidelines will say rental homes only, but all you have to do is claim you lan to rent out the home, you don’t even have to have a tenant. So if you bought a vacation home in 2006, or you were flipping houses and got stuck with a couple, you just claim it is to rent out, maybe even post an ad on Craigslist, and poof!, you have a rental property eligible to get modified.
  • HAMP is getting extended to December 31, 2013.
  • Payments for lenders and servicers that modify mortgages will triple to 18 cents to 63 cents on the dollar.
  • Fannie and Freddie will get an extra incentive push from the White House if DeMarco lets it happen.

This is wrong on so many levels, but the quick and dirty critique is—the program has failed to match private modifications without subsidies by a measure of nearly 3 to 1 (900,000 for HAMP and 2.6 million for non-HAMP mods); nearly half of the HAMP trial mods have failed dragging out the shadow inventory; and under no circumstances should taxpayers be bailing out investors!

HAMP is using money from TARP (i.e. taxpayer money), to pay banks to modify mortgages (off setting the losses). So if Joe Risker bought a home in 2005 or 2006 intending to rent it out or flip it and is now substantially underwater and thinking about walking away, he should not get taxpayer money to pay for his mistake.

Correcting the Record

On a related note, some of the coverage of the new HAMP details has been inaccurate. Correcting one example: There is a story in the Palm Beach Post from last Friday claiming that HAMP has widely been panned as a failure since it has modified “less than 1 million” homes. Since HAMP has modified 909,953 as of January’s report that is technically correct. But then article says that “The [new] program will be paid for through HAMP’s already allocated $29 billion budget, of which between $9 billion and $10 billion has been spent or is earmarked for current modifications.

First off, the budget for HAMP is $29.9 billion so the rounding is off. Second, and more importantly, according to the Special Inspector General report on TARP published January 26, as of December 31, 2011, HAMP had expenditures of $1.8 billion and had been allocated $22.7 billion. That is substantially different than the Palm Beach Post story.

The article continues saying, “Many economists agree writing down principal balances on underwater mortgages is the best way to corral the housing crisis and reduce foreclosures.” Really? Five paragraphs later the writer concedes, “at least one economist argued the government should just let the market reset itself and stop coming up with new housing subsidies that he believes are delaying a recovery,” before going on to quite Arnold Kling. This is nonsense. For every economist supporting principal modifications I will find you one in opposition. The way the article frames it mods are definitely the way to go and Wall Street is just getting in the way. There are very logical reasons to oppose forced mods and this view is left out of the article by the author.

The article author also says the acting FHFA director is “Anthony DiMarco”, when his name is in fact Edward J. DeMarco. For the most part, these are homework errors and lead to the improper framing of the story.