Posts tagged ‘HAMP’

“Ugh.”

That is how a trusted colleague of mine responded to this article in the CU Times reporting that veteran Congresswoman Carolyn Maloney, who sits on the House Financial Services Committee called for a moratorium on taxi medallion foreclosures during a committee hearing dedicated to debt collection practices. In addition, none other than Rep. Alexandria Ocasio-Cortez referred to some of the taxi medallion loans as “criminal.”

These comments are the latest sign that the taxi medallion issue is not going to go away anytime soon. As policymakers discuss how best to aid drivers in financial straits, let’s hope that some basic facts are understood. Most importantly, the medallion crisis cannot be separated from the rise of Uber and Lyft. We would not be having this discussion today if these two companies did not upend the entire structure of the taxi industry and destroy the value of medallions.

In addition, many medallion loans are now being serviced directly by NCUA. NCUA has to do more to publicly explain to policymakers on both the state and federal level what steps it is taking to modify these loans. Many credit unions are working with members, but that message is not getting out to the public as effectively as it should be with NCUA in control of so many of the lending decisions.

Finally, I hope legislators think long and hard before advocating for a foreclosure moratorium. The reality is that the price of medallions has tumbled and may very well continue to do so. A moratorium would do nothing except put further downward pressure on medallion prices, and extend the time it will take to get the medallion crisis behind both drivers and lenders alike. Instead of talking about moratoriums, policymakers should look at the example of the HAMP Program and see if there are mechanisms to assist both lenders and borrowers in making financially responsible modifications. Stay tuned.

A Phase-in for CECL

In addition to a delay in its effective date, another piece of good news on the CECL front is that Chairman Hood has indicated that NCUA will be joining with banking regulators in permitting credit unions to phase in recognition of loan losses triggered by the new standards over a three-year period.

CECL requires financial institutions to recognize lifetime expected credit losses, and not just credit losses incurred as of a reporting date. In addition, it implements a lower threshold for financial institutions to recognize a potential credit loss. As a result, many institutions could experience a reduction in their retained earnings as they increase buffers to guard against potential losses.

Many banks and credit unions have expressed concern that they could face dramatic losses on paper if they are not allowed to phase in the recognition of losses caused by this new standard. Earlier this year, the OCC and FDIC finalized regulations giving banking organizations that experienced a reduction in retained earnings as a result of adopting CECL the option of phasing in its effects over a three-year period. At a presentation before NAFCU earlier this month, Chairman Hood indicated that NCUA will be proposing similar regulations for credit unions.

 

September 27, 2019 at 9:51 am Leave a comment

HAMP and HARP to be Extended

To no one’s surprise, FHFA Director Mel Watt announced in a speech Friday in California that the GFE’s would extend their participation in the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) until the end of 2016. This coincides with the end of the Obama Administration. What a coincidence.

Started in 2009, these programs were the primary Administrative response designed to assist consumers affected by the Mortgage Meltdown. Under the HARP and HAMP programs, eligible mortgages are either refinanced or modified to make them more affordable. Despite the fact that these programs have been around since 2009, the Director estimated that there are more than 600,000 eligible mortgage holders who have not yet taken advantage of them, including close to 19,000 New Yorkers.

The announcement follows the FHFA’s announcement last month that it was not raising the guarantee fees charged by Fannie and Freddie.

Some quick thoughts. Regardless of a whether or not you agree that HAMP and HARP are worth keeping, the fact that we are still utilizing these programs six years later indicates yet again how slow moving and unimaginative the nation’s response to the mortgage meltdown has been.

Hopefully, there will come a time when Congress has a thoughtful debate about restructuring the nation’s housing support system or comes to the conclusion that Fannie Mae and Freddie Mac should be reformed but not eliminated. Right now, nothing new is being done. The country is as dependent on Fannie and Freddie today as it ever has been. It’s as if they never really went bankrupt.

May 11, 2015 at 8:20 am Leave a comment

Three Strikes, the Economy is Out

With economic growth again stagnating, there are three things policy makers in this country could do instead of putting their heads in the sand and hoping that the Euro doesn’t implode any time soon.  First, they could come to a “grand bargain” on deficit reduction and tax policy keeping us from having to peer over the “fiscal cliff” after the November elections.  But this scenario is more fanciful than a Harry Potter book. 

A second step policy makers could take is for the FED to not only extend but increase its bond buying program in the coming weeks.  This scenario is quite possible but we’ve been there and done that.  The market is already rising in anticipation of FED action and, at this point, the artificially low interest rates are about keeping the economy from getting any worse as oppose to providing an indirect stimulus for it to get better.

Which brings us to the third and, in my ever so humble opinion, most intriguing option.  The Wall Street Journal is reporting that the Federal Housing Finance Administration (FHFA) is once again considering authorizing principal reduction for underwater home owners.  HAMP has been around for a while, but the overseers of FANNIE and FREDDIE have actually taken their job seriously and have not been convinced that principal reduction is a good deal for the American taxpayer.  They are concerned, among other things, that principal reduction might encourage defaults and, at the very least, provide mortgage reductions to people who are actually making their payments.  But now, a Treasury report is being used to provide further evidence that such a program might actually generate a cost savings for the American taxpayer.

This is a program that should be given a shot.  First, there are pockets of this country where large numbers of mortgages remain underwater and with the economy sluggish, it is about time we realize that we’re not going to grow ourselves out of the housing crisis any time soon. 

More importantly, a widespread principal reduction program could provide the quickest, most credible stimulus to an economy that desperately needs some good news.  Homeowners would be given a floor for their housing values and many of those same homeowners would find themselves with much needed equity.  In addition, this stimulus could be provided without Congressional approval.  I understand the arguments against moral hazards, but now’s no time to be standing on principal when policy makers need to see what they can do to help out the nation’s economy.

July 31, 2012 at 7:18 am Leave a comment

Are GSE’s standing on principle(al)?

The resistance of Fannie Mae and Freddie Mac to principal reduction is under renewed scrutiny and likely to be a political issue for the rest of the election.  Yesterday, National Public Radio and ProPublica reported that in 2010 Freddie Mac bought $5 billion in financial instruments, the value of which is directly tied to the assumption that home owners with overpriced mortgages will continue to make their payments.  While this may make an intelligent hedge policy for a company in conservatorship, critics counter that their primary mission is encouraging home ownership.  

With much fanfare (just joking), the Treasury Department announced on Friday that it would extend the Making Homes Affordable Program until December 31, 2013.  HAMP provides incentives to lenders who agree to modify the terms of mortgage loans.  The new and improved program will:

  • have more flexible underwriting standards, which will allow lenders to take into account “secondary debt” such a second liens and medical bills which can make it difficult for a person with an otherwise affordable first lien mortgage to make payments;
  • be expanded to include properties currently occupied by tenants, as well as vacant property the borrower intends to rent; and
  • increase the amount of money lenders will be granted for providing modifications that include principal reductions from $.18-$.63 for every dollar depending on the degree of change in the debt to income ratio.

But, there is one major flaw in the program that is hard for the Treasury Department to overcome.  It can’t mandate that Fannie Mae and Freddie Mac participate, since both are being overseen by a conservator charged with protecting their funds.  So the best the Treasury can do is inform the Federal Housing Finance Administration that it will provide incentives to Fannie and Freddie if they allow the servicers to make principal reductions. 

When all is said and done, this may very well be a perfect example of how government never stops whipping a dead horse — it simply gets a bigger whip.  The HAMP program was unveiled as the Obama administration’s principal program for dealing with the housing crisis and it has been slow to pay dividends, to put it euphemistically.  When President Obama unveiled his plan in the spring of 2009, it was projected that three to four million homeowners would benefit through restructured mortgages.  To date, fewer than one million have done so.  

The reasons for this go beyond any problems perceived in the program. For example, in the age of mortgage-backed securities, a servicer often faces less liability and can ultimately make more money by taking a hard-line on mortgage modifications.  And, although I believe that principal reduction is the only means to quickly address our housing problems, I doubt that government can ever provide enough incentives to make it financially prudent for a servicer to aggressively pursue principal modifications when the borrower is making his or her payments.

January 31, 2012 at 7:16 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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