Annals of government toothlessness, HAMP edition

By Felix Salmon
October 4, 2011
Paul Kiel has a fantastic story today about the way in which the government has proved utterly toothless with regard to auditing its mortgage-modification programs, never mind publicizing or enforcing whatever violations it did manage to find.

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ProPublica’s Paul Kiel has a fantastic story today about the way in which the government has proved utterly toothless with regard to auditing its mortgage-modification programs, never mind publicizing or enforcing whatever violations it did manage to find. HAMP, it turns out, is a perfect example of what happens when the government mandates change without enforcing it: huge amounts of money get spent, to little or no lasting effect. Neil Barofsky provides the nut quote:

“If you have a set of rules for which compliance is completely voluntary and no meaningful consequences for those who violate them, having all the audits and reviews in the world are not going to make a bit of difference,” he said. “It’s why the program has been a colossal failure.”

Kiel’s story is based on the government audits of just one mortgage servicer — GMAC — since Treasury refuses to release the audits of anybody else. (It only released GMAC’s after GMAC itself, to its credit, consented to the release.) Treasury has paid servicers some $471 million in cash incentives — but taxpayers aren’t allowed to audit where that cash has gone, or whether it has been effective. It’s a fiasco.

HAMP was envisioned as a huge, $50 billion program; in the event, it never really took off, and only $1.6 billion has been spent so far, including $116 million paid to Freddie Mac for its ineffective auditing services:

It took several months for the unit to even get off the ground. In August of 2009, Treasury rejected Freddie Mac’s first reviews of servicers as inadequate, because they were “inconsistent and incomplete” and its staff was “unqualified,” according to a report by the TARP’s special inspector general. Freddie Mac promised to improve. That process took several more months.

As a result, for the program’s crucial first eight months there effectively was no watchdog. Nationwide, servicers filed to pursue foreclosure on about two million loans during that time.

When there was an audit, the auditors seem to have been just as incompetent as the servicers:

The December 2009 review says that 35 of the 247 loans auditors reviewed were denied because the homeowner was “less than 60 days delinquent.” In the report, auditors said that was the right decision in all but one case. But being less than 60 days delinquent is never on its own a legitimate reason for a servicer to deny a modification, according to the program rules. Homeowners are eligible for a modification even if they’re current on their loans, as long as they can show they’re in imminent danger of defaulting.

Another example: Auditors agreed that GMAC had correctly denied a homeowner because of a failure to sign a trial modification offer by Dec. 31, 2012, HAMP’s end date. That makes no sense, because the review took place in 2009. Treasury’s spokeswoman said this was a typo and that the homeowner was denied for a completely different reason.

There are several other examples in later reports of auditors signing off on denial reasons that have no apparent basis in the program’s rules. For instance, auditors cited “grandfathered foreclosure” as a legitimate reason for some denials. The spokeswoman said such loans had been in the foreclosure process before GMAC signed up for the program, but the program rules explicitly stated at the time that such loans were eligible.

I believe GMAC, here, that it’s the auditors who are at fault, rather than GMAC — that in many of these cases, the auditors’ stated reasons were generated by the auditors themselves, and often bore no relation to GMAC’s reasons. The fact is that ProPublica’s Kiel seems to be much better versed on HAMP than anybody tasked with enforcing the program:

Treasury defended the questionable denials, and in so doing raised even more questions. For instance, the spokeswoman said HAMP “does not specifically require servicers to evaluate loans that are less than 60 days delinquent.” But Treasury’s official guidance to servicers said such borrowers “must be screened.”

“It makes you wonder if the Treasury even knows the rules for their own program,” said National Consumer Law Center’s Thompson.

Well done to ProPublica, and Kiel, for getting this information and for making it public in a fully transparent and interactive way. There’s nothing in this story to make it seem that Treasury is anything other than fully captured by the big banks. Its reaction to ProPublica’s FOIA requests, in particular, seems unjustifiable. There’s nothing commercially sensitive in these documents: Treasury is just trying to protect the banks from fully-deserved bad press.

And while the state attorneys general — at least in states like New York and California — might have a more aggressive stance towards the big banks than Treasury does, the fact is that they, too, are simply not set up to implement real enforcement. Which is the main reason why the banks have de facto impunity in this country. Even when the government tells them to do something, they face no real negative consequences from failing to do it.


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yes, Felix, Rome is burning

Posted by Tseko | Report as abusive

Great commentary, Felix, but you seem unwilling to take that last step in the chain of logic. If Treasury deliberately created a toothless (but much ballyhooed) “solution” to the foreclosure crisis, then sat back for two years while banks took a taxpayer-funded vacation from reality–whose fault is that? Is it a bug or a feature?

The answer to the first question is Geithner-bama. And the second, well, I think you know that one already.

Posted by LadyGodiva | Report as abusive

What’s new? It’s just more bank welfare. The rich get rich while the middle class dwindles away…

It seems as if the new image of the underdogs these days are those with only one yacht and three vacation homes and less than $5 million as defined by John McCain.

Posted by ptiffany | Report as abusive

How dare you LadyGodiva for attacking poor lil ol Timmy Geithner. He’s the chief proponent behind the concept of “too big to fail”, the laissez-faire concept used to justify using taxpayer funds to cover the gambling losses of the banks and faux banks (Goldman Sachs) at full value! Whatta deal!

Then, there’s the new transparency concept promoted by Benny Bernanke and Timmy called opaque transparency. They talk up transparency (full disclosure) while conducting trillions of dollars in transfers to banks in secrecy, justified by claiming that the dumb populace would panic if they knew the truth about who’s stealing from whom.

Posted by ptiffany | Report as abusive

I sent my package of documents to EMC/Chase on 12/16/10. I have had to “replace” these 4 (four) times. “They could not locate them”. I contacted FHA/US Treasury Dept- their office in Dallas/Ft Worth contacted EMC/Chase. I requested a name of someone to whom I could send my 5th package of documents- 88 pages in total. I advised FHA I would send to a specific person only- as then I could drag that person into court if need be. They have never responded to me since. I did get 3 letters right away from EMC/Chase- each stating they needed 15 more days to review my case. All were received in one week. Then we get a over night package telling us we did not qualify – reason? We had not provided them all the documents they needed. Dear merciful Lord- no wonder the lending industry cratered – so when do the trials begin – better yet the executions? We are going to have to make some serious changes in the way banks get to run our country. Funny thing, I had thought our government and elected representatives ran the country- but clearly they do not. Pity.

Posted by cpuman | Report as abusive

So now you are saying that the “Government” should impose regulation and enforce it… make up your mind(s). The major problem is that there are no concerted efforts to solve any problem.

Posted by nieldevi | Report as abusive

In 1972, when I was a freshman at the University of Minnesota I happened upon a Vietnam War protest on Washington Avenue. The road was blockaded and some tires and debris were set afire.

I was not a big fan of the Viet Nam War, but I had some pressing business so even in my reckless youth, I did not participate. Now, for the first time in my life, I will attend a protest in Minneapolis this coming Friday… and I will be there to protest.

I don’t approve of violence and I certainly don’t approve of harming property, but I do approve of standing up to be counted. I agree with LadyGodiva. The program could have originally had honest intentions but if so, those intentions were subverted and converted into still more wealth for those Wall Street bastards.

I have noticed that there is very little local news coverage of the impending protest before it occurs. It is intended to be an Arab Spring sort of affair arranged by I heard that 3000 Americans protested in Boston. I hope Minneapolis can improve upon that.

I’m not an anarchist. I have a college education and a job. I have served in the military as has did my father and my son. My children have college educations.

But I have two very young grandsons and I’ll be damned if I’ll stand idly by and watch those Wall Street bastards ruin this country without at least taking a stand against it.

I don’t know, of course, how many Minnesotans will show up for the protest but I’m hoping for a large enough turn out to motivate even more people to stand up for what they believe in.

I believe that ordinary Americans can make a difference in this country… and it’s high time we try.

Thanks, Felix, for calling attention to the hot, steaming BS as it flows out of government and Wall Street.

Posted by breezinthru | Report as abusive

thanks for writing about this huge problem – i was denied in HAMP some eight times with 250 pages of faxes before finally getting approval for modification after almost 5 months of calling and faxing every three work days – it is a bloody mess – over that time period i experienced only two very knowledgable people who eventually stream lined my application in the end -

Posted by exodus | Report as abusive

Treasury is correct in stating that the rules don’t specifically require evaluating borrowers who are less than 60 days delinquent. They just didn’t explain it well. Borrowers who are less than 60 days delinquent must be evaluated to determine if they are in imminent default, but each servicer is allowed to have their own definitions of what qualifies someone as in imminent default. Thus, they can effectively eliminate such borrowers from consideration.

Posted by DaDaDan | Report as abusive

And financial people wonder why we march on Wall Street? We just want you to do the right thing. If corporations are people too, then they must have the same morals and ethics that Americans believe in. Otherwise we’re going to deport your asses.
Anger is building and you can’t stop it this time. Freedom of the press may belong to those that own one, but we have other means of communication now. Wall street should be very scared.

Posted by tmc | Report as abusive

Another prime example of just how ineffective a leader Obama is.

Posted by r.felder | Report as abusive

The Too Big To Deny never planned on following through on mortgage-mods in the first place. There is no institution on this planet as adept at stonewalling as a National or Global banking entity. None. HAMP was just eye-wash written into TARP to sell the Big Bail to all the bleeding-heart cry babies. That allowed the Too Big To Deny to gorge themselves at the public trough guilt free. Nobody on either side of that bill ever really expected to have modify mortgages. Really!

Posted by Woltmann | Report as abusive

@cpuman: This is a great lawsuit you have sir/madam. Almost all companies have an “Errors and Omissions” insurance policy. Show there error, and you can stay in your house and never pay another dine on it. What some people fail to see in this scheme is that even after the bail out. They still want your property so they can add it to their “assets” column. It’s all a sham built around basic accounting principles.

Posted by LadyM | Report as abusive

I’ve worked with short sales and loan modifications before this crisis hit the fan in 2008. I’ve seen hundreds of cases that were denied modifications because the banks and servicers couldn’t handle the volume of homeowners seeking help with their payments. I’ve seen first-hand how HAMP is really done and I can document how inefficient and disgusting the program really is. I’ve seen a countless people foreclosed on for things that didn’t even exist in HAMP guidelines. I tried helping my own mother with her modification, only to have her be denied of a modification because “she didn’t pay her HOA fees and list it on her financial worksheet,” when she didn’t live in an association! Imagine that, losing your home because you didn’t pay fees that didn’t exist. Meanwhile, the Obama administration did nothing to enforce existing regulations, yet praised HAMP as homeowners’ saving grace.

Posted by xander52199 | Report as abusive

“…unfortunately, law by no means confines itself to its proper functions. And when it has exceeded its proper functions, it has not done so merely in some inconsequential and debatable matters. The law has gone further than this; it has acted in direct opposition to its own purpose. The law has been used to destroy its own objective: it has been applied to annihilating the justice that it was supposed to maintain; to limiting and destroying rights which its real purpose was to respect. The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense into a crime, in order to punish lawful defense. How has this perversion of the law been accomplished? And what have been the results? The law has been perverted by the influence of two entirely different causes: stupid greed and false philanthropy.” Frederic Bastiat
Will we, the plundered, ever have the courage of someone like Nathan Hale and be willing to give our very lives to stop the evil of the few elite who own our economy and legally plunder us? Oh yeh, I forgot, no one knows who Nathan Hale is anymore; studying history is nearly obsolete. Well now, that sure worked in the favor of the banks!

Posted by skburns28 | Report as abusive