Part I of this series
Part II

The biggest problem with HAMP, the Obama Administration’s mortgage modification program, is the leeway it gives to the banks to set the terms of the negotiation. Even when they violate the guidelines of the program, they face little recourse. We can see this in the story of David Justian of Muskegon, MI. He purchased his home for $245,000 that has recently been appraised for $154,000 (He currently owes about $220,000). Justian has been chronicling some of his HAMP experience at a personal website, with all the attendant twists and turns, but the turning point of what was a pretty pleasant process came recently.

Justian was immediately approved for a trial modification from Chase, which was supposed to last three months. And then:

2.5 months into the trial period I was informed by Chase that they transferred my file that they serviced (my loan is owned by Fannie Mae) to IBM Lender Business Professional Services and that my 3rd monthly trial period pmt had to be paid to them, which I did. I have since been contacted by IBM LBPS via a note taped to my door that I was in default and that I had to re-apply for HAMP with them. Everything I had going with Chase, they said, was of no consequence. I called the HAMP Hotline and was told that any file that was sold or transferred had to start all over again. That’s the
rule. When I noted that my file could be transferred every 2.5 mos. and it wasn’t fair, they said, “well, that’s business, don’t expect them to be fair.”

Why, if only there was a government agency who could try to force some fairness on the process! This endless loop of selling the loan to extend the trial process is nothing new; Justian has heard from others who had their Chase loans sold to IBM LBPS and had to restart their modifications. This is despite assurances at the time of the sale that any transfers would not change mortgage terms and conditions. “My position is that a mortgage modification” signed by both the borrower and the loan servicing company modifies the mortgage terms and conditions which cannot be changed simply
because of a transfer,” said Justian, though IBM obviously begs to differ.

Where it stands now is with IBM re-evaluating the modification, which could drop the payment as much as $900 a month. HAMP Hotline told Justian that the bank must “determine if the file can be be profitable with the mortgage modification.” They can deny the modification if it makes no financial sense for them.

This is ultimately the Achilles heel of the program. The mortgage servicers make decisions in their own interest, despite the program being sold as in the interest of the homeowner. This story from Hampton Roads, Virginia is indicative of that:

Michele McBeth was not behind on her house payments and never had been. But money was tight for the Norfolk elementary school teacher in 2009. She hadn’t seen a raise in years, and her son would soon be starting college.

McBeth was looking for any way to relieve some of the strain on her budget, so she contacted her mortgage company to see whether it could lower her payments.

The company offered help through the U.S. Treasury Department’s Making Home Affordable program, and McBeth signed on to a trial loan modification.

Now, almost a year later, McBeth is facing foreclosure.

The story is honestly disgusting, and reminiscent of many I’ve told – borrowers denied for a permanent mod, with the lender trying to force them into an in-house mod with less favorable terms, or threatening immediate foreclosure. The mortgage companies achieve this by ignoring the guidelines, lying to their customers (like telling them to miss a payment on purpose, or accepting them into the program when the savings are modest) and basically running over people just trying to save their homes. As McBeth says in the article (which I urge you to read), “Initially, I thought they were looking to help me out. Eventually, it began to feel like they wanted to take my house.”

People are just being chewed up by the banks with this program. It’s unconscionable.

UPDATE: See also this new Pro Publica profile of a dissatisfied HAMP user.

Lest you think that existing-home sales were the only ones to plummet in July, today comes the news that new home sales have also dropped to a record low.

The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 276 thousand. This is an decrease from the record low of 315 thousand in June (revised down from 330 thousand).

Note the Red columns for 2010. In July 2010, 25 thousand new homes were sold (NSA). This is a new record low for July.

The previous record low for the month of July was 31 thousand in 1982; the record high was 117 thousand in July 2005.

The sales were down 12% from last month and 32% year-over-year. Months of supply on new homes went up to 9.1 months, thankfully below double digits but still very high.

While much of the blame for this can be attributed to the phase-out of the homebuyer’s tax credit, clearly the market needs to clear more before it reaches bottom. And low home sales means less construction and real estate activity and investment overall, making these reports a serious drag on the economy.

There’s really not much policymakers can do to provide immediate relief, at least not before the midterm elections. There are plenty of steps that can be taken or improved upon, but their effects will not be immediately felt. The main policy options, like extending unemployment and providing some state fiscal aid, have been done. This is the economy that Democrats are stuck with heading into November.

Jane covered cat food commission co-chair Alan Simpson’s “milk cow with 310 million tits” comment directed at the head of OWL, and their subsequent petition to remove him from the co-chairmanship. That petition has nearly 1,000 signatures so far. Simpson has refused to comment on the matter.

It’s unclear from Simpson’s email if he means Social Security is the milk cow or if he’s referring to America in general. A Simpson assistant responded to a HuffPost email saying that Simpson was traveling and unable to comment immediately. OWL is now circulating a petition calling on the former Republican Senator from Wyoming to resign.

But Simpson has not only been writing letters to OWL. He earlier penned a note to Dean Baker, economist and co-director of the Center for Economic and Policy Research. Simpson apparently has no idea that Baker is a leading economist, judging from his derisive letter.

Dean,

I only recently came across your column Alan Simpson: A Man Who intensely Wants to Cut Social Security. If this is the way that you do your reporting, I would think that you would have damn few fans or readers! I’m not out to “cut” anything. I’m out to stabilize the Social Security system and so, let me share with you what Stephen C. Goss, Chief Actuary of the Social Security Administration shared with the National Commission on Fiscal Responsibility and Reform on May 12, 2010. I hope with your own massive bias and prejudice that you won’t throw it away before you read it! First, you have to know what the Social Security system is – what it’s situation is with regard to solvency – and how do we make it sustainable. Good reading I think! And after you have finished it, you might contact me unless you just want to ramble off with your own weird opinions – on your own once again.

P.S. I loved the picture accompanying your piece. With chin in hand, I first thought of Rodin’s The Thinker – but after reading the piece I can see you haven’t done very much of that!

I think he’s talking about this picture. The Rodin joke – high comedy!

The point is that Simpson thinks he can bully his way through his critics with no repercussions. And in that respect, he may be right. But his critics have some tools for mass action which may surprise the former Senator. Communications have evolved in the past 25 years. It’s likely we’ll run into a double standard of only “certain” people being fired for their email communications, but you never know.

Let me end the pretense: I’m really writing this in the hopes that I’ll get the next letter.