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America's Banks Continue to Stonewall HAMP

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By : John Smith    99 or more times read
Original concerns that Obama’s foreclosure-prevention program would merely slow things down without avoiding severe economic strain to the American economy seem to be coming true.

According to data released by a real estate website there were 930,000 listings in the first quarter of 2010 – that’s up 7% from the previous quarter and a massive 16% worse than the average for the first three quarters of that year. Information from Treasury tells the same tale too. More than 6 million American households are delinquent, and HAMP has helped just 228,000 distressed borrowers, with a further 108.000 applications pending.

Last Tuesday both JPMorgan Chase and Wells Fargo independently told a Congressional Panel that they were “not inclined” to “fully embrace” the latest tweaks to HAMP that includes banks voluntarily lowering the outstanding mortgage balances of compliant borrowers out of work to more affordable levels. This seems short-sighted, especially because Obama’s plan applies only to a narrow band of deeply indebted borrowers who match very specific criteria.

The same Congressional hearing also dug down into another specific obstacle to mortgage modifications. Pension Funds and Mutual Funds quite often hold first mortgages, while banks have tended to concentrate on home-equity loans and second liens too. This produces conflict between two different lenders – Investors believe that second level debt should be reduced first, while banks naturally refer original mortgages to be tackled up front, because that could save them money.

The Black Rock investor group has suggested modifying bankruptcy procedures to resolve the spat between the administration and the banks. In terms of this, the Bankruptcy Courts would attempt to negotiate a borrower’s debt down to an affordable level, beginning with credit card, second mortgage and other unsecured debt before tackling the trickier aspect of primary mortgage debt. Their call is not new – it has an advantage over state-subsidized modifications in that bankruptcy is hardly likely to seduce borrowers into defaulting to get lower payments.

The banks, on the other hand, want things to stay the same, presumably because this lines their pockets better, and have thus far successfully argued their case in Congress, and with Washington too, it now seems. The result of their greed has been to effectively forestall HAMP and bring the nation’s economy into further disrepute – how long, America’s distressed homeowners plead, must this continue?

Contracts between lenders and borrowers are signed on equal terms in the sense of legal rights. Joe Doe used to believe that this also included the right to understanding if things went sour, and the banks certainly encouraged this with their barely subliminal messages of caring. America will be a worse place if a few big bullies are allowed to drive millions of Americans out of their homes.
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