"The plan I'm announcing focuses on rescuing families who've played by the rules and acted responsibly," President Obama said of his Home Affordable Modification Program in Mesa, Ariz., on February 18, 2009. "It will give millions of families resigned to financial ruin a chance to rebuild," he claimed. Over 40 months and millions of foreclosures later, we now know that HAMP was never really intended to help families stay in their homes.
Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, has published a new book, "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street." It presents a damning indictment of the Obama administration's execution of the TARP program generally, and of HAMP in particular.
Barofsky, a registered Democrat and Obama donor, had been an assistant U.S. attorney investigating mortgage fraud when he was appointed to be the top watchdog for the TARP program.
From the beginning, Barofsky had major objections to HAMP's design. Among its worst aspects was a system of giving banks $1,500 bonus payments and servicers $1,000 bonus payments for each loan modification they processed. This system encouraged mortgage servicers to approve temporary "trial" loan modifications, even as they continued the foreclosure process against borrowers. Ultimately, after collecting the bonuses, they would deny permanent mortgage modifications. Thus, HAMP helped drive thousands of already-distressed families into foreclosure after giving them nothing but a few months of false hope, and possibly causing them to cough up more in mortgage payments than they would have in a foreclosure without government interference.
Barofsky writes that "it seemed as though Treasury simply didn't care about the suffering of so many borrowers. Instead, Treasury officials seemed too busy congratulating themselves on the trial modifications the program was raking up ... Helping banks, not homeowners, did in fact seem to be Treasury's biggest concern."
By delaying millions of foreclosures, HAMP gave bailed-out banks more time to absorb housing-related losses while other parts of Obama's bailout plan repaired holes in the banks' balance sheets. According to Barofsky, Treasury Secretary Tim Geithner even had a term for it. HAMP borrowers would "foam the runway" for the distressed banks looking for a safe landing. It is nice to know what Geithner really thinks of those Americans who were busy losing their homes in hard times.
The most disturbing parts of Barofsky's book are stories of Americans who were made worse off by Obama's bailouts. One California business owner who could have sold his house at a loss, but maintained some savings and his credit history, was enticed into a HAMP trial modification that was supposed to cut his payment in half. Instead, thanks to HAMP, he lost his house, his savings, his credit and his business.
Such stories serve as a warning that big government is quite often the handmaiden of big business and the foe of taxpayers, free markets and individual consumers. As for the argument that Obama's policies have made the economy worse, not better, HAMP could be example number one.