December 17, 2010 by Leave a comment

Earlier this week the Congressional Oversight Committee lambasted the Treasury Department and its foreclosure prevention programs, specifically the Home Affordable Modification Program.

I think the U.S. Treasury would be markedly more awesome if it had a money bin to swim in.

Among other things, the report said:

“Treasury’s reluctance to acknowledge HAMP’s shortcomings has had real consequences.  Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclousre mitigation may well be left unused.  As a result, and untold number of borrowers may go without help – all because Treasury failed to acknowledge HAMP’s shortcomings in time”.


“Treasury has refused to specify meaningful goals to measure HAMP’s progress.  Treasury has also failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications”.

Needless to say, Treasury took some umbrage at this verbal thrashing, and yesterday, Tim Geithner, Secretary of the Treasury issued a response.  Geithner claimed that HAMP “has helped to catalyze the market to provide millions of loan modifications”. I suppose this is sort of true.  HAMP has issued in the neighborhood of 1.4 million temporary mortgage modifications, and about 516,000 permanent modifications. We could debate the efficacy of these modifications, but let’s give Treasury the benefit of the doubt, because working with lenders, borrowers, and servicers to bring about mortgage modifications is not an easy task.

Geithner also said that a national foreclosure moratorium would hurt home prices:

“As demand for housing slows, people will be unwilling to buy, and people sitting in their neighborhoods will see prices drop further because market sees much longer time of recovery.”

It is undoubtedly true that a foreclosure moratorium would hurt home prices.  It is also true that to a very large extent, that ship has already sailed.  Home prices are down 20-30 percent from their 2006 peak (depending upon the market) and most analysts are predicting another 5-10 percent decline in the coming year.  Would this be exacerbated by a foreclosure moratorium?  Probably.  Would a foreclosure moratorium also be bad for those who are trying to buy or sell a distressed property?  Most certainly.  Should more effective steps have been taken to alleviate this problem years ago?  In the parlance of our times, “you betcha”!

Here’s the thing: housing prices can recover, and will ultimately come back at some point (albeit years down the road).  What is more difficult to repair is respect for and belief in the rule of law.  With all the foreclosure/robo-signing/securitization shenanigans that we have seen come to light over the past couple of months, it seems to me to be crucial that corporations aren’t allowed to run roughshod over individuals while ignoring the rule of law.

I am not saying that a blanket foreclosure moratorium is the way to go.  I don’t think it is.  However, I do believe that we need to proceed slowly with foreclosures and make sure that those who are foreclosing upon houses actually have standing to do so in accordance with the law.  I am far more concerned that our country doesn’t turn into some kind of banana republic than I am about further marginal price declines in the housing market, which seem to be fait accompli anyway.

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