A bit of sleeper story over the weekend, but a good one: After nearly six months of criticism, the Treasury Department is planning on "pressuring" mortgage companies in its Home Affordable Modification Program (HAMP) -- which modifies troubled mortgages so that borrowers can afford payments and not lose their homes -- to start helping enough people to make the program worthwhile.The decision comes after Bank of America got caught softpedalling the government affordability standards to draw troubled borrowers into their own, less consumer-friendly modification program. The move probably won't quell criticism from those who say the administration has been a step behind on many of its economic initiatives. Here's what Treasury plans to do now:
[Assistant Treasury Secretary Michael Barr, right] said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.
Unfortunately, I don't think shame will be enough to change these banks' behavior (what, are they going to become less popular?) and withholding cash payments will probably be an incentive for the banks to stop doing the modifications altogether.
It's time to expand the "Right to Rent" program that lets foreclosed borrowers rent their homes, and bring back cramdown, which would allow bankruptcy judges to modify loans so that borrowers can make their payments. Cramdown was killed last spring thanks in large part to the lack of support from the Obama team, but it's the best way to convince the banks that the government is serious about stopping foreclosures and shoring up the housing market without bribing the banks and ignoring their continuing, pernicious behavior.
-- Tim Fernholz
