Huffington Post:
A recent study by Federal Reserve economists shows that underwater homeowners are, not surprisingly, much more likely to default on their mortgages. Moreover, borrowers who are deeply underwater -- like those in HAMP, who average negative 50 percent home equity -- are far more likely to default willingly; that is, to give up on trying to overcome their growing mountains of debt, and just stop paying at all.
This revelation underscores the problems with the path taken by the Treasury Department to help homeowners, who merited federal attention only after the government gifted Wall Street banks with hundreds of billions of taxpayer dollars to survive a financial meltdown largely of their own making. Rather than designing a program exclusively focused on homeowners, the administration chose to set up an initiative that seeks to balance the needs of homeowners with the interests of lenders and investors.
Thus, while the average homeowner in the program is saving more than $500 a month, 28 percent more homeowners have been bounced from the program than have been helped. Homeowners that receive permanent reductions in their monthly mortgage payments end up deeper underwater than they were before they were "helped." Meanwhile, lenders and investors continue to foreclose on properties at a record pace.
On Tuesday two top Republicans released a Thursday letter to Treasury Secretary Timothy Geithner calling for the administration to "immediately" end HAMP.
"It defies common sense that taxpayer money is being used to pay banks to modify loans that are likely to default anyway," said Rep. Darrell Issa (Calif.), the ranking Republican on the House Committee on Oversight and Government Reform. "In cases where loan changes could keep borrowers out of foreclosure, banks have a clear incentive to make changes without a need for public funds."
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