I'm going to keep this pretty short, since I've already written several diaries on this topic that cover what the Geithner-Obama "anti-foreclosure" plan is and the basic ideas behind it. I also covered some dissenting views.
Anyway, periodically, one sees diaries here such as this one making claims that HAMP and its relatives are supposed to help "homeowners". With this background, I bring you the excellent financial blogger and Roosevelt Institute Fellow Mike Konczal report of his meeting with Geithner on the flip.
Back: Rortybomb Goes to Treasury:
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.
So, basically, it's a stupid way to do what could be more easily accomplished by just cutting checks to people holding MBS. The argument is now settled.
But if you want to see it in numbers, they are ugly:
If we look at the HAMP program stats (see page 3), the median front end DTI (debt to income) before modification was 44.8% - the same as last month. And the back end DTI was an astounding 79.7 (about the same as last month).
Think about that for a second: for the median borrower, about 80% of the borrower's income went to servicing debt. And the median is 63.5% after the modification.
In other words, after a relatively rare "successful modification" the median HAMP borrower is on the brink of bankruptcy or just massively overpaying for housing. (And they probably aren't right side up on their house debt either...)
This is a predatory and stupid policy. In order, it benefits: people who own MBS; the former GSEs (now just Gs); people who paid too much for houses; people who are in default. Which is pretty much backwards from the claims.
UPDATE:
A particular poster has been embarrassing themselves in the comments with the claim that this predatory policy is good for everybody. First off, that's wrong. It's not good for:
(A) Renters
(B) The schmucks who make a few extra payments and then get foreclosed on
Since (B) is the group HAMP is supposed to help, it's obviously predatory. I linked to the ugly back-end DTI numbers above. But we can make this even tighter with a simple example:
Let's imagine a neighborhood with 20 houses all worth $100,000, which we think is the real price reflecting the wealth of the neighborhood. Now we hear that one of the houses will be foreclosed on, and we have good reason to think it will sell for $50,000 at auction and then $75,000 with financing. We also believe that buyers will all demand to not pay more than $75,000 after that for the next six or seven years.
What should happen is obvious: the neighbors should run, not walk and pay $100,000 to buy out the defaulted mortgage and give away a free house. Their collective exposure is $475,000, which is only a little under 5x the cost of simply paying off the defaulted loan. (And that amount gets less if there was any equity.)
Now, of course, we haven't seen this, which means some of the assumptions above were wrong. Let's go through them:
(A) Our estimate of what happens at auction or the sale by the flipper who buy there is far too low; or buyers won't pay only $75,000 for the foreseeable future. In this case there wasn't a crisis.
(B) Alternatively, the neighbors don't have it. But then prices really were too high.
The point is that claims about house-price plans need to work around this kind of simple example, but they usually don't.