Among the various White House initiatives aimed at reducing the devastating numbers of foreclosures that have plagued the United States over the last few years, the Home Affordable Modification Program (HAMP) has been a controversial target of both praise and criticism. According to a recent report by the Office of the Special General for the Troubled Asset Relief Program (SIGTARP), the delinquency and default rates among many of the earliest HAMP recipients are reaching levels of deep concern.
Surprising and Cryptic
The latest SIGTARP findings are certainly alarming: Nearly half of the earliest HAMP mortgages have end up defaulting for a second time. Even more recently modified mortgages are defaulting at significant rates; those borrowers who received HAMP aid since 2010 have gone by the way of default at about 28.9 to 37.6 percent.
The SIGTARP report offers conclusions that are stark reminders of the frail state of the U.S. economy. One such conclusion is that mortgage default rates are higher the longer borrowers are making reduced monthly payments under HAMP. The report also goes on to suggest that the U.S. Treasury is not only surprised by the findings; it is not prepared to understand the underlying reasons.
Lacking a clear understanding of the situation, the White House is bound to receive even more criticism over HAMP. The program is already way short of its original goal of helping up to four million American borrowers at risk of losing their homes to foreclosure. The idea of the Treasury labeling HAMP defaults as cryptic will only serve as fuel for critics of the Obama administration.
Not Such a Huge Loss
While critics of the White House are busy trying out their faultfinding hats, a blog post by Ruth Mantell of Dow Jones' MarketWatch compares HAMP and other foreclosure rescue initiatives to the overall TARP effort.
Initial TARP funding was mostly utilized to bail out large financial institutions while allowing others to fail and beabsorbed by rescued banks. While financial levathans such as Bank of America and JP Morgan Chase received generous amounts of taxpayer funds, regional banks such as PNC received $7.65 billion. Ruth Mantell explains that the amount received by PNC is almost the same as what HAMP and similar programs have drawn from TARP.
As disheartening as it is to learn of the high default rates among HAMP recipients, the loss is but a small portion of the losses incurred by the financial institutions that in the end required taxpayers to bail them out when Wall Street collapsed in 2008.