National Review: HAMP's Not-So-Shocking Results

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Stephen Spruiell is a National Review Online staff reporter.

Can I let you in on something hilarious going around the Internet these days? No, I'm not talking about the Double Rainbow video. I'm talking about the reaction -- just as amusing, though not nearly as joyful -- of a number of left-wing political bloggers and commentators to the discovery that the administration's foreclosure-mitigation program was actually a slow-motion bailout for Fannie Mae, Freddie Mac, and the banks, and not really designed to help underwater borrowers at all. Imagine Neo's reaction when he's told what the Matrix is, only pretend that the Matrix was something that was obvious all along, and you'll get why I'm laughing.

The program's intention was clear from the outset, as the editors of National Review Online noted when it was announced 18 months ago:

So, cui bono? Put simply, this program is designed to benefit Fannie and Freddie shareholders, not the great majority of Americans struggling with their mortgages. The only loans that can be restructured are those held in Fannie/Freddie portfolios or securitized by the twins. Just in time to benefit from a refinancing boom, Fannie and Freddie plan to raise their fees to as high as 3.5 percent on April 1. (Note that date, taxpayers, and ask yourselves who is being played for the fool.) And only a tiny slice of homeowners will be eligible -- those who are in relatively weak positions (house payments exceed 31 percent of gross income) but not too weak (house payments do not exceed 38 percent of gross income) and who are, despite their mortgage difficulties, still creditworthy enough to pass bank underwriting standards. Fannie and Freddie get new capital, new income, and better loans in their portfolios. Most homeowners get nothing, and taxpayers get the bill.

At the time, a lot of supporters of the administration argued that only heartless Republicans and conservatives would oppose such a well-intentioned and generous program to keep struggling borrowers in their homes. The plan was the subject of CNBC commentator Rick Santelli's famous rant, which drew angry condemnation from liberals and kicked off the tea-party movement that continues to drive them insane.

It turns out that conservatives were right: The program was full of bad incentives for borrowers and backdoor bailouts for banks. Neil Barofsky, the special investigator in charge of overseeing TARP spending, recently blasted the Home Affordable Modification Program (HAMP): "The American people are essentially being asked to shoulder an additional $50 billion of national debt without being told . . . how many people Treasury hopes to actually help stay in their homes as a result of these expenditures," Barofsky's report stated. The report also noted that HAMP "has not put an appreciable dent in foreclosure filings," because, among other reasons, "the number of trial and permanent modifications that have been cancelled substantially exceeds the number of homeowners helped through permanent modifications."

But the real eye-opener for left-wing supporters of the program came when a handful of financial bloggers posted write-ups of their visit to the Treasury Department last week. Treasury Secretary Tim Geithner and Co. had invited these bloggers to a private briefing as part of the department's outreach efforts leading up to its big seminar on the future of housing finance. One of the subjects the bloggers and the Treasury officials discussed was HAMP. According to blogger Steve Waldman's write-up, Treasury officials were "surprisingly candid" about the program's failures:

The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of "extend and pretend", but I don't think that's quite right. This was extend-and-don't-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks.

In a word, duh. It's not like no one saw this coming. We did (see above). But here's the funny part: Many left-wing commentators apparently trusted the administration's good intentions to the point of being "shocked" by these revelations.

Duncan Black, who blogs as Atrios, wrote, "Conning homeowners by announcing a government program designed to help them when in fact it was designed to help the banksters is, in my world, 'cruel.'"

Mike Konczal at Rortybomb, who attended the briefing, wrote, "The narrative seemed to change from helping homeowners to spacing out the foreclosures. I asked them to repeat it, because the idea that billions of taxpayer dollars are being spent to smooth out foreclosures for banks struck me as new narrative -- it's explicitly extend-and-pretend, and also fairly cynical."

But my favorite was economist/blogger Brad DeLong, who summed up his blindsided take with the headline: "Department of 'Huh?!': HAMP Edition."

Huh? What? Obama effectuated a "cynical" and "cruel" bailout of Fannie and Freddie under the guise of a compassionate mortgage-modification program? The mind reels! The heart aches! What else has he lied to us about?

It's actually worse than all that. The administration's program created an incentive for underwater borrowers who weren't yet behind on their mortgage payments to fall behind on purpose in order to qualify for a modification under HAMP. An aide to a Republican congressman tells NRO, "People who could have made their mortgage payments end up three months behind, and they can never recover from the penalties and late fees, so they end up in worse shape than if the program had never existed from the outset."

The aide, who works on constituent issues, says, "I've had at least one case where the person gets a letter saying that they qualify for HAMP, and from their point of view, it would really help them out if they were able to qualify for a lower payment, but if they had to make the payment they were making, they could have done it by cutting back on other parts of their life.

"Then at the end of the process, they're denied the modification, and they're three months behind on their mortgage," he says.

Why have so many been denied modifications? According to ProPublica's Ryan Knutson, it's because "the Treasury Department . . . encouraged banks to start trials quickly, causing banks to make trial offers to people without fully vetting their eligibility, and ultimately letting in many homeowners who were destined to fail."

But from the banks' point of view, even if many of these borrowers end up in foreclosure, at least the program juiced a few trial payments out of those who had stopped making payments altogether. And it eased the crush of foreclosures for awhile, giving Fannie, Freddie, and other financial institutions room to breathe. It was designed, as Treasury officials are now candidly admitting, to help banks, not homeowners. Supporters of the program are shocked by this turn of events. They wouldn't be, if they had listened to us.