Embedded in the wider question of how banks steered housing prices upward -- driving prices upward, gaming the system, dropping all pretense of market regulation -- is the question of how they were enabled (and continue to be enabled) by government policies designed to funnel money upward into the hands of the wealthy few.
This article from Talking Points Memo, especially, which captures how the high and the low-level points connect to each other -- the low being something like "Wait, waht? Interest modification? Principal reduction? Say I have a house - what do I want to ask for?" the high being, "What are the systemic pretexts for income inequality, and how are they replicated in foreclosure?"
Here, he's explaining the Home Affordability Modification Program -- a program which aims to modifying interest rates slowly and incrementally over time, but largely leaves principal untouched -- is actually just a deeply cynical ploy to drag out the process as long as possible, to keep accruing checks.
Those who believe that is the role of government to redistribute income upward and help the banks want the government to get people to keep paying on underwater mortgages as long as possible. While this may make little sense for these homeowners, since they will never accumulate equity and are likely paying more in ownership costs than they would pay to rent a similar house, it does help the banks' bottom line. Each additional month that underwater homeowners stay in their homes paying the mortgage the banks are getting money they would not otherwise receive.
This explains the value of a program like the Home Affordability Modification Program (HAMP). Only a small fraction of the people who enter this program will end up with a permanent modification that will actually allow them to accumulate equity. However, the entire time that they work with the program, they keep sending a mortgage check to the bank -- and the government kicks in some taxpayer dollars as well. This is a real win-win from the standpoint of the banks as they get more checks from the homeowner than would otherwise be the case, plus the subsidy from the government for stringing homeowners along.
HAMP has come under a lot of criticism, in part because of the fee-for-service nature of the loan adjustments (loan servicers are paid for each modification, not for the whole package) and poor oversight which opens the door to scam artist and predatory lenders (predatory loan modifiers?) Here's what the National Taxpayer Union has to say about it:
HAMP has proven a colossal failure that has done more to harm than help debt-laden homeowners. Having only achieved slightly more than 500,000 permanent modifications, 40% of which the Treasury expects to default, HAMP has fallen dramatically short of its goal of helping 3 to 4 million homeowners avoid foreclosure. To date, far more borrowers have dropped out of the program than successfully achieved permanent loan modification. These borrowers, along with those who later default, will often be left with larger outstanding debt, worse credit scores, and less home equity. Congress should pass legislation that eliminates the HAMP program, to put an end to these counterproductive outcomes while saving taxpayers billions of dollars.[17]
The time piece is interesting, because it's not unlike what homeowners do when they've had enough and decide they're going to defend their homes -- they try to draw the process out, to buy themselves time. In this case, from the banks' perspective, they can wait as long as they want -- time turns into money, and in a world where there is no value left in the market, the easiest and best thing they can do, by this estimate, is to wait it out and keep collecting checks.
There's more to the article -- little bits and pieces, leading to a fuller picture. Bit by bit, article by article, we will defend these homes, and figure out how the process actually works...
