Did bank delays cause 800,000 foreclosures?
New research identifies the number of homeowners the federal HAMP program could have helped if banks had moved more efficiently.
This post comes from Marilyn Lewis of MSN Money.
News outlets are reporting on a new study that computes the effectiveness of the $75 billion federal effort to stop foreclosures through HAMP, the Home Affordable Modification Program. Or, looked at another way, the study sizes up the damage from banks' failure to modify loans in the early years (2009-2010) of the foreclosure crisis.
If the largest banks had moved faster and more efficiently, about 800,000 foreclosures would have been averted, the study found.
The Consumerist's headline: "Study says 800K homeowners should've avoided foreclosure but big banks messed it all up."
Writes CBS News:
While HAMP did modify loans and prevent roughly 800,000 foreclosures, the study found it could have helped another 800,000 homeowners if all lenders had been operating at the same high level of capacity. That would have meant around 2 million homeowners would have been able to modify their loan instead of 1.2 million.
The research was the work of scholars from the Federal Reserve Bank of Chicago, the government's Office of the Comptroller of the Currency, the University of Chicago, Columbia Business School and Ohio State University. They used a massive trove of government data covering about 60% of all U.S. mortgages.
The scholars also looked at why some banks did so much better than others at helping homeowners renegotiate their debt.
The American tradition of government offering household debt relief and foreclosure-prevention programs in troubled times dates back at least to the Great Depression. Yet, oddly, little evidence has been gathered about the effectiveness of these programs, the researchers said.
In one sense, the study uncovered what we already know -- which is that HAMP has fallen far short of its goal of helping 3 million to 4 million indebted households.
Bloomberg Businessweek writes, "The program also had no effect on consumer spending -- no extra bump in auto loans, home prices, lower credit card delinquencies, or other ancillary benefits." (Post continues below.)
Instead of giving money to homeowners, HAMP pays servicers -- the companies (often bank-owned) that send mortgage statements, collect payments and foreclose when homeowners fall too far behind.
HAMP pays servicers $1,000 per loan after they've finished negotiating with a homeowner, plus $1,000 a year for three years if the borrowers keep paying on time. That's on top of the servicers' normal fees of about $400 to $1,000 a year for a $200,000 outstanding loan balance mortgage, the study says.
The budget for HAMP is hard to pin down, but $75 billion is the number used most. Much of it still is unspent. "I've seen HAMP alternately described as a $75 billion, $50 billion, $45.6 billion and $29 billion program," writes David Dayen on Firedoglake.
Some banks responded well to the HAMP incentives and did lots of modifications to keep borrowers in their homes. But the biggest banks had much less impressive records. "A few large servicers . . . responded at half the rate (of) others," the study says.
Since 75% of the mortgage servicing business is concentrated in the hands of a few big banks, that meant HAMP's effectiveness was severely limited. Writes Bloomberg Businessweek:
The researchers did find strong correlation between a servicer's success with HAMP and the operational skill it had before the program was introduced. Banks that previously had fewer loans per employee, more training for staff, and shorter wait times for phone calls took far more advantage of HAMP.
Nonprofit news agency ProPublica writes: "As a result of banks' disorganization and understaffing -- particularly at the peak of the crisis in 2009 and 2010 -- homeowners were often forced to run a gauntlet of confusion, delays, and errors when seeking a mortgage modification."
The researchers did not identify the problem banks. But ProPublica points out "the largest mortgage servicers are Bank of America, JPMorgan Chase, Wells Fargo and Citi."
$25 billion settlement
Public attention shifted away from HAMP after a $25 billion settlement was negotiated in March between banks and state and federal governments over abusive foreclosure practices.
But the settlement, too, has been disappointing. It has largely failed to stop foreclosures, which was the goal. Rather, banks are using the fines they agreed upon in the settlement to facilitate short sales, in which borrowers sell their homes for less than they owe.
"In a short sale, homeowners still lose their home, though under less punitive terms than a foreclosure," Bloomberg Businessweek writes.
The researchers conclude:
Our findings reveal that the ability of government to quickly induce changes in behavior of large intermediaries through financial incentives is quite limited, underscoring significant barriers to the effectiveness of such policies.
More on MSN Money:
I am so sick of people posting that all homeowners in foreclosure purchased more than they could afford and they deserve to lose what they can't pay for! I am one of those fighting foreclosure against Bank of America. I didn't have any problems paying ALL my bills in full and on time every month, including my mortgage, for years until I lost my job like thousands of other Americans due to the economy. When I contacted BAC to try to work out some kind of payment plan until I could find full-time employment again, I was given nothing but the run-around. I am still fighting with them and it's been 3 YEARS!!!!!!! I have been working full-time for quite a while and am still getting stall tactics from BAC about refinancing, remodifying, ANYTHING!! I'm not trying to get away with anything for free. I'm just trying to hold on to what I've busted my a@# for all those years. But it's difficult when the big banks don't want to work with you, especially when you consider that MY tax dollars bailed your freakin' banks out of hot water!!!!!!
Lets see if I have this right. First the government requires banks to loan money to people who can't afford a house - then come to the rescue when they can't make payments, and if the goverment and banks would have given away $75 billion tax payer dollars faster - our forclosure rate would be down.
Is anyone really surprised by this?
I would argue that the "big banks" made more money by NOT participating!
Disorganization and understaffing?
They had enough people to write the loans, why wouldn't they have enough to modify them?
More BS if you ask me...
Close the Banks. End the Federal Reserve. Get rid of Wall Street and focus 100% on job recovery so we can restore economy and start climbing out of this mess?
First the banks tank the housing industry with liar loans!
Obummer bails them out with money to"Help keep people in their homes!!"
The banks then takes this money and purchase futures based on their rigged libor rate!!
The homeowners and economy are left to bleed out and die!!!
Congress!The Senate!The Fed and Obummer all knew this!
Our Government is failing and needs to be replaced!!
Term limits for all... Close The Fed..
We continued to send the same paperwork over and over again,at least ten times, even while actually on the phone with a Citi employee faxing and talking to make sure they rec'd. After they acknowledged rec'pt by fax, time goes by and they send a letter stating they have not rec'd paperwork and apps.again. When 4 months elapse after doing this and they also do not apply the payments while in the midst of the HAMP program. We were never late on any of the payments, and recieve a foreclosure notice.
I had to come up with 20k to get relief from the lawyers that are in the same address as the mtg. co.or, the foreclosure would have taken place.As long as they could extend the time past 4 mos. and not credit the home loan monies as they send the funds to a different location and not to the loan, it shows unpaid.They can then recieve the credit monies for the foreclosure they placed.
Absolute Criminals! They should all be in prison.
The HUD Guidelines for HAMP NEVER had this default requirement listed in order to apply for a modification.
The only way to get a refinance when interest rates dropped was to apply for a loan modification.
So, if you were paying close to 7%, and then interest rates had dropped to 4.5%, you could not just refi if your loan was underwater. You had to have a very close loan-to-value ratio to qualify for a refi. After the bubble burst, most home values plummeted beyond the L-T-V.... so your only choice if you wanted to stay in your home was a modification.
It is a F==Ked up world this has been happening for years... BANKER DON'T WANT TO LOSE POWER, INCLUDING INSURANCES companies, GOVERNMENT, FLORIDA POWER & LIGHT, MIAMI DADE WATER AND SEWER.
ASK WHERE IS THE AMERICA DREAM THEY SPEAK ABOUT EQUAL OPPORTUNITY
If you have a small business beware, there is something out there that steals, they blind you and it is through bank accounts, credit cards, even as to duplicating checks, there is also something out there that is a compulsive shopper.
People who speak the truth are sick, crazy or are mentally ill, but it is real
I have experienced, if there is someone out there that has experienced something beyond their understanding or anything that you can not explain.
Please post the message here I have been trying to find answers.
Are these the too BIG to fail banks?. I have zero balance, I simply dont trust themAnd they are failing.
In 2004-2006 I earned 250k a year as a general contractor. I employed 46 people. In 2002 I sold my home and used the money to grow may business. My family downsized, we rented and I worked 70 hrs a week to make this happen.
in 2006 I put 130k down on a 685k home my payments were just under 4000 a month. Well within my income!!!
In November of 2007 I went from having 17 scheduled jobs on my books to 3. I literally went from having millions of dollars a year on my books to a few thousand in 1 month. Non of my clients could get financing for their projects, many others were canceled out of fear.
I took a couple of jobs with little or no profit in them to keep my loyal employees fed. I then began liquidating assets.
About six months later Citibank informed me that my LTV was now upside down (What!). and that the loan was considered high risk. They raised my interest rates and my mortgage went up to 6200 a month!!!!!! My income had dropped considerably and I went from paying 48K a yr to 75k a year. After numerous phone calls and an attorney six or seven months had passed and I started missing payments I couldn't help it. I had sold my truck, my boat and my motorcycle and put the money toward my mortgage.
Citibank never came through with the modification. Due to the number of foreclosures in my neighborhood my home short sold for 385K or 300k less than the original sale price.
That is my story, credit destroyed, original home gone!, dream home gone! a lot of blood sweat and tears gone!
If you think I bought a house I could not afford --- KISS MY ****!!!
My only mistake was being in a business that built homes for the other people who got suckered as well. Hell I worked soooo much I could not justify taking the time to build my own home.
Somebody needs to drive a truck BATF style into the home of Citibanks CEO. Not the building where the poor shlubs do the bidding of the over payed corporate robbers.
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