Mike the Mad Biologist

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Meet your new Treasury Secretary

My guiding political principle is “people have to like this crap.” That is, if a policy makes peoples’ lives worse, then it’s a shitty policy*. More about that in a bit.

Last week, a bunch of bloggers went to visit the Treasury Department, and one of the topics for discussion was the Home Affordable Modification Program (‘HAMP’). HAMP has been accused of doing little to help people from avoiding foreclosure, and, instead, has only prolonged their attempt to meet a (doomed to fail) series of payments (this is derisively called “extend and pretend”). In other words, these homeowners would have saved money if they had only entered foreclosure earlier, and avoided HAMP (as Atrios put it, “Hi, we’re from the federal government and we’re here to fuck you over”).

Well, according to Shahien Nasiripour, who attended the meeting, this was actually intended (italics mine):

The so-called “shadow inventory” of homes — those with severely delinquent mortgages, in foreclosure or already repossessed that have not yet been put on the market — has significantly grown since the administration took office and is estimated to range from 5 to 7 million homes. Through June, borrowers in foreclosure have been delinquent for an average of 461 days before being evicted from their homes, according to Jacksonville, Fla.-based data provider Lender Processing Services.

That’s a good thing, the official said, because it gives the market time to absorb these homes gradually — without leading to a dramatic drop in home prices. While analysts disagree — prices will decline when those homes flood the market, which many, like Mark Hanson, a housing industry analyst based in California, believe to be a virtual certainty — the official pointed to the futures market where traders are betting that home prices will remain stable through the fall of 2014.

David Dayen translates (italics mine):

This is literally incredible to me. The Treasury official is saying that extend and pretend – squeezing a few more payments to the banks out of borrowers before letting them succumb to the predations of their lenders – is a positive. That can only be told from the perspective of a wealthy homeowner looking at their property values. For the struggling borrower, that’s a disaster on a number of levels.

First, they’re sinking more money into their underwater homes with the hope that they can reach an affordable solution with their lender, a solution which this official implicitly admits IS NOT COMING. Second, the official is incorrect, at least according to information I’ve been told by borrowers…. When a borrower accepts a temporary modification, they are still on the hook for the higher payment if they get bounced from the program. The Treasury official thinks it’s a good thing that they had lower payments for a short period of time, but if they get denied a permanent mod, THEY ARE RESPONSIBLE for the difference between the temporary mod and the actual payment, and the bank can foreclose on them at any time for failure to pay that difference, which after several months can add up. This puts tremendous leverage on the side of the banks. To this Treasury guy, that’s a good thing.

How this is fundamentally any different from a mob bust-out escapes me. Except that, you know there’s a good chance you’ll get screwed if you get in bed with the mob. I wrote at the beginning that “people have to like this crap.” Guess what? There are going to be millions of middle-class foreclosed-upon people who will hate Democrats because of this shitty, indefensible back-door assist to banks and wealthy property owners.

Not hopey or changey. In my opinion, kinda impeachy though. If the Republicans take back the House, you know they are going to beat Obama over the head with this (even as many of them probably wish they had thought it). And the problem for Obama is that this is indefensible.

Related post: Mike Konczal, who attended the meeting, writes:

They are sticking by HAMP. 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.

What I don’t understand is the complete misperception that they can finesse this. Implicitly or explicitly, people will figure this out, and then, people will vote against Democrats. By this point, I don’t expect them to do the right thing for its own sake, but I still can’t comprehend how self-interest doesn’t kick in.

Update: Atrios: “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.’”

*While this might seem the obvious role of politics, for many movement conservatives and Palinists (and those circles overlap considerably), the primary point of politics is not to solve problems, but to establish themselves as primus inter pares in ‘their’ country.

Comments

  1. #1 CuiJinFu
    August 23, 2010

    It’s strange that some people are just figuring this out, although I agree that it’s noteworthy that Treasury is giving up on the charade of helping homeowners. Every economic action the government has taken since Bush and Paulson pushed TARP through with vague threats of armageddon was to protect the bankers at the expense of taxpayers. I find it hard to feel much sympathy of the homeowners who fall for this scam though.

    The most brilliant thing the financial industry ever “innovated” was to bribe both political parties rather than just one. There’s no doubt the democrats are slaves to the banks, but no more so than republicans.

    Any citizen that thinks voting against the democrats because they’re too cozy with the banks will change anything is in for a rude awakening. The republicans will just be worse and totally unapologetic about it. Long live the two-party, no-win system.

  2. #2 Brad
    August 23, 2010

    This should be no surprise to anyone. Who is this good for – the administration who is looking down the barrel of the mid-term elections. The more they can mask the reality of the housing market, the better their chances of staying in office. Remember, we saddled our grandchildren with neverending debt for the stimulus bill – which Obama wants to claim is working. Worsening housing numbers don’t fit the storyline.

  3. #3 FrauTech
    August 24, 2010

    Well not just wealthy homeowners…there are struggling homeowners who got in over their heads and would like to sell their house at a price where they can get rid of the mortgage. I mean, not every struggling homeowner is going to default. You must be looking to buy Mike? It’s always the (middle class) people who are home hunting and irritated that prices haven’t dropped even more who seem to dislike these programs the most. I’m not an economist, but the housing market is not totally disimilar to the stock market. So if you can avoid a panic, you can avoid an unnecessary crash. So if doing this allows home prices to stay stagnant for the next few years rather than do another crash, that might be a good thing for a very many people who are looking to sell and get out, or people who have to sell to get a job somewhere else and have no choice.

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