Opinion: Columnists

HAMP: A case study in liberal failure

Opinion,Conn Carroll,Columnists,Campaign 2012

"The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which."

So ends George Orwell's dystopian "Fairy Story" classic, Animal Farm, about the pig-led animal revolt on an English farm. The animals saw in the end that their leaders had slowly become exactly like the human overlords they had overthrown.

Many liberals must have had the same feeling this week when former special inspector general for the Troubled Asset Relief Program Neil Barofsky promoted his new book, "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street."

Barofsky's 270-page book details many troubling aspects of how both the Obama and Bush administrations implemented TARP. But his account of how Treasury Secretary Tim Geithner designed the Home Affordable Modification Program (HAMP) to "foam the runway" for banks at the expense of distressed homeowners is particularly disturbing.

When President Obama first announced HAMP in February 2009, he promised it would help more than 4 million families "who've played by the rules and acted responsibly" to modify their mortgages and avoid foreclosure.

"Banks and lenders must be held accountable for ending the practices that got us into this crisis in the first place," Obama said. "But if we move forward with purpose and resolve," he continued, "I am absolutely confident we will overcome this crisis."

Unfortunately, Obama and his cohorts at Treasury never really considered how long it would take to develop new guidelines ensuring that only those who "played by the rules and acted responsibly" got loan modifications. As former Freddie Mac economist Arnold Kling noted at the time, the government-sponsored mortgage entities had spent years developing thousand-page notebooks for selling and servicing mortgages. Creating a new mortgage modification program from scratch would be like ripping out hundreds of pages from both guides, rewriting them, shuffling them, throwing them in the air, and then telling the banks to pick them up.

Instead, Treasury just let banks implement the program using the same practices that caused the crisis in the first place. Where mortgage servicers had issued no-doc mortgages before the crash, Treasury allowed them to issue no-doc mortgage modifications after the crash.

And, surprise! The program was a complete failure. Of the 1.3 million mortgages modified by HAMP through June 2010, only 43 percent were converted to permanent modifications. Treasury did start requiring verified income documentation after that date, but the final numbers are not impressive either. As of June 2012, only 1 million mortgages had been permanently modified, far less than the 4 million Obama had promised.

Worse, as Barofsky's book notes, Treasury's failure to help more families was a feature, not a bug, of the HAMP program. "HAMP would 'foam the runway' by stretching out foreclosures, giving the banks more time to absorb losses while the other parts of the bailouts juiced bank profits," Barofsky writes. "Helping banks, not home owners, did in fact seem to be Treasury's biggest concern."

Barofsky's book was not the first clue out of the Treasury Department that HAMP was designed to help banks, not homeowners. Geithner admitted as much to a gathering of friendly financial bloggers back in August 2010, prompting Media Matters Senior Fellow Duncan Black to write, "[I]f you do liberalism badly then people get it in their heads that maybe liberalism is pretty sucky. The economy sucks and HAMP was a complete failure, whether deliberately or not, and that's what people know."

The headline of Black's post: "When Liberalism Doesn't Work It Discredits Liberalism."


Conn Carroll ( is a senior editorial writer for The Washington Examiner. Follow him on Twitter at @conncarroll.

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