If at first you don’t succeed . . . move the goal-posts.
In the grand tradition of stimulus policy gone wrong, that seems to be just what the US Treasury has done in relation to its Hamp mortgage modification programme.
Via Mike Konczal over at Rortybomb, who attended one of the blogger-meets at the Treasury last week:
They are sticking by HAMP. The narrative seemed to change from helping homeowners to spacing out the foreclosures. I asked them to repeat it, because the idea that billions of taxpayer dollars are being spent to smooth out foreclosures for banks struck me as new narrative – it’s explicitly extend-and-pretend, and also fairly cynical.
For sure the narrative has changed, given that the March 2009 press release announcing details of Hamp carried the headline: “Relief for Responsible Homeowners One Step Closer Under New Treasury Guidelines.” Not relief for banks, or stalling foreclosures — but for homeowners.
Unofficially, of course, there were always those who knew Hamp would have the side effect of slowing or obscuring losses for banks. Indeed, the effect of mortgage modifications on bank results was what prompted FT Alphaville’s interest in the programme in the first place.
Barclays Capital summed up the connection well back in December:
Intuitively, if there are millions of foreclosures to still work through the system, it is better to spread them over a few years than have them hit the market in six months – this prevents prices from over-correcting to the downside. And with the Administration focused on modifications, we expect long delinquency-to-liquidation timelines to help home prices.
This is exactly what we’ve seen. According to estimates by Amherst Securities, the time from first missed mortgage payment to liquidation used to be about 14 months for loans liquidated in mid-2008. It’s now about 20 months — a one third increase in the space of about two years.
The difficulty is if home prices don’t start to pick up or if redefaults on modified mortgages increase.
In other words, a double-dip now would be bad news for banks given that they’ve been waiting for — and expecting – things to get better. Many have been lowering their provisions for bad loans, which also means if a second wave of losses did come, financials would not be as prepared as they could be.
Roll on shadow losses.
Related links:
FT Alphaville’s Hamp coverage
US housing bubble v2.0 - FT Alphaville