Treasury Admits Program for Struggling Homeowners Just a Ploy to Enrich Big Banks

[dajoki]

AlterNet / By Zach Carter
Treasury Makes Shocking Admission: Program for Struggling Homeowners Just a Ploy to Enrich Big Banks
The Treasury Dept.'s mortgage relief program isn't just failing, it's actively funneling money from homeowners to bankers, and Treasury likes it that way.
August 25, 2010
http://www.alternet.org/story/147955/treasury_makes_shocking_admission%3A_program_for_struggling_homeowners_just_a_ploy_to_enrich_big_banks

The Treasury Department's plan to help struggling homeowners has been failing miserably for months. The program is poorly designed, has been poorly implemented and only a tiny percentage of borrowers eligible for help have actually received any meaningful assistance. The initiative lowers monthly payments for borrowers, but fails to reduce their overall debt burden, often increasing that burden, funneling money to banks that borrowers could have saved by simply renting a different home. But according to recent startling admissions from top Treasury officials, the mortgage plan was actually not really about helping borrowers at all. Instead, it was simply one element of a broader effort to pump money into big banks and shield them from losses on bad loans. That's right: Treasury openly admitted that its only serious program purporting to help ordinary citizens was actually a cynical move to help Wall Street megabanks.

Treasury Secretary Timothy Geithner has long made it clear his financial repair plan was based on allowing large banks to "earn" their way back to health. By creating conditions where banks could make easy profits, Getithner and top officials at the Federal Reserve hoped to limit the amount of money taxpayers would have to directly inject into the banks. This was never the best strategy for fixing the financial sector, but it wasn't outright predation, either. But now the Treasury Department is making explicit that it was—and remains—willing to let those so-called "earnings" come directly at the expense of people hit hardest by the recession: struggling borrowers trying to stay in their homes.

This account comes secondhand from a cadre of bloggers who were invited to speak on "deep background" with a handful of Treasury officials—meaning that bloggers would get to speak frankly with top-level folks, but not quote them directly, or attribute views to specific people. But the accounts are all generally distressing, particularly this one from economics whiz Steve Waldman:

The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with "the system," "the economy," and "ordinary Americans."

Mike Konczal confirms Waldman's observation, and Felix Salmon also says the program has done little more than delay foreclosures, as does Shahien Nasiripour.

Here's how Geithner's Home Affordability Modification Program (HAMP) works, or rather, doesn't work. Troubled borrowers can apply to their banks for relief on monthly mortgage payments. Banks who agree to participate in HAMP also agree to do a bunch of things to reduce the monthly payments for borrowers, from lowering interest rates to extending the term of the loan. This is good for the bank, because they get to keep accepting payments from borrowers without taking a big loss on the loan....MORE http://www.alternet.org/story/147955/treasury_makes_shocking_admission%3A_program_for_struggling_homeowners_just_a_ploy_to_enrich_big_banks

[Big Bill Jefferson]

1. This is true of course

Pretty obvious when you know who wrote the legislation.

[Name removed]

2. Deleted message

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[nxylas]

3. I'm shocked, shocked I tell you

Nah, not really.