WSJ Reporting $20 Billion Mortgage Principle Reduction or Be Fined White House Plan

The Wall Street Journal is reporting the Obama administration is planning on levying $20 billion in civil fines on mortgage services for foreclosure fraud in order to force the Banks to reduce principle on mortgage modifications by a similar total amount. In other words, we're gonna fine you by a big whopping sum if you don't actually help homeowners, reduce mortgage principal and take the loss. Of course absurd mortgage backed securities and investors remain unscathed.

The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America's largest banks to pay for reductions in loan principal worth billions of dollars.

Terms of the administration's proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won't be borne by investors who purchased mortgage-backed securities, these people said.

If a unified settlement can be reached, some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers, these people said.

New Mortgage Modification does not have mandatory principle write downs

For all believing the Treasury's announced expansion of HAMP, the program that is a dismal failure, is really gonna do something, think again.

From the New York Times:

John Taylor, president of the National Community Reinvestment Coalition, said he was skeptical the program would work in large numbers. “I will be pleasantly shocked if investors step up for half a million borrowers,” he said. “The real acceleration in the number of foreclosures prevented will come with mandatory principal write-downs.”

Since the FHA is on the hook if principle write downs occur, it could also put the FHA in more debt, i.e. the taxpayer at risk.

Notice it's never the investors or the banks who are forced to take a hair cut, it's always the homeowners and the taxpayers upon which the losses are dumped.

GAO Confirms HAMP is Hopeless

Recall when we said HAMP is a scam? A new GAO report confirms that conclusion (well not so dramatic but the statistics are the same!)

When Treasury announced the program in March 2009, it estimated that HAMP could help 3 to 4 million borrowers. Through February 2010, including both the portion funded by TARP and the portion funded by Fannie Mae and Freddie Mac:
  1. about 1.1 million borrowers had begun trial modifications
  2. about 800,000 were in active trial modifications
  3. fewer than 200,000 permanent modifications had been made

Foreclosure bomb to hit housing this spring

By now we are all aware of the HAMP program and how it has "extended and pretended" the foreclosure problem in this country ( less than 1% of trial mortgage modifications become permanent modifications).
But you probably didn't know that the HAMP program has a sub-clause called HAFA, and HAFA is going to unleash a closurefraud.org/2010/01/03/hafa-new-program-offers-borrowers-foreclosure-alternatives/"> foreclosure bomb on the housing market this spring.

As part of the Home Affordable Modification Program (HAMP), HAFA provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu (DIL) to avoid foreclosure on a HAMP-eligible loan.
The HAFA program simplifies and streamlines the use of short sale and DIL options by incorporating the following unique features:

HAMP's purpose isn't to save people's homes

If you listened to Obama Administration and the MSM you would have thought that the Making Homes Affordable program was designed to help people stay in their homes. You would have been mistaken.

Of the nearly 760,000 modifications that have been enrolled in three-month trial plans, less than 32,000 have transitioned into permanent relief for homeowners. Nearly 87 percent of the modifications under the administration's program are for investor-owned mortgages.

That's right - the program is designed to bail out real estate investors and speculators, not homeowners.

HAMP is a scam

The Obama administration’s Home Affordable Modification Program has been touted as a savor of distressed homeowners across America. The problem is that the numbers show an entirely different story.

More than 650,994 loan revisions had been started through the Obama administration’s Home Affordable Modification Program as of last month, from about 487,081 as of September, according to the Treasury. None of the trial modifications through October had been converted to permanent repayment plans, the Treasury data showed.

None? NONE! Not a single one! WTF!
Five months and 651,000 trial modifications and not one single borrower can get a permanent break? We throw hundreds of billions of dollars at these TARP banks and they can't cut a single distressed homeowner some slack?