Edward Pinto has more to say about the shortcomings of the Treasury’s Home Affordable Modification Program.
Plenty more.
His Op-Ed in today’s Wall Street Journal says that the changes announced last week – threats to fine and publicly shame mortgage servicers for not acting quickly enough -
But Pinto didn’t leave it at that. In commentary emailed this afternoon, he began where the Op-Ed left off, advocating a program of reductions in loan principal for (at least some) troubled borrowers, which, if properly designed, would cost about the same as what the Treasury is spending now, but with more homes saved.
“The massive losses at Fannie and Freddie (and, in my opinion, those to come at FHA) are sunk costs and already are the responsibility of the U.S. taxpayers,” Pinto, a former Fannie Mae exec and prominent FHA critic, said in the email.
“Hundreds of billions in these losses have yet to be taken at Fannie and Freddie. The question today is - how do we spend these sums most wisely and effectively? HAMP is not effective for the reasons I mentioned. Principal relief has been proven time and time again to be the most effective means, however only when the newly modified loan is properly re-underwritten (and many will be for the 1st time).”
He continued: “There is no doubt that the government will undertake a modification program. The only question is what form. What's driving foreclosures today is the sheer number of underwater mortgages. Unless an effective debt reduction program is implemented, we are just postponing many foreclosures by 1-3 years and postponing these markets healing. Better to spend for principal relief now and get this problem behind us.
"I believe that we will spend the same amount of money either way, but history shows that the results will be much more effective with principal relief. And this approach will help all homeowners, because debt will be written off and equity will be increased in neighborhoods. This is what the housing market needs - deleveraging.”
