Reply #78: Fed Investigating Goldman Over Possible HAMP Mortgage Mod Violations

[Demeter]

http://www.nakedcapitalism.com/2011/05/fed-investigating-goldman-over-possible-hamp-mortgage-mod-violations.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The Financial Times discusses a curious development, namely, that the New York Fed is making an inquiry into allegations that Goldman’s mortgage servicing unit, Litton Loan Services, failed to comply with HAMP guidelines. Readers may recall that HAMP Is the half-baked Do Something About the Mortgage Crisis program designed to give homeowners “permanent” year payment reduction mods, which is a kick the can down the road strategy.

In HAMP, servicers routinely asked borrowers to send the same documentation multiple times and assured borrowers they were likely to get a mod, only to refuse them. The worst is that many homeowners wound up worse off since they were not told that when the reduced payment trial mod ended, they would be asked to fork over the foregone portion of the payments plus late fees, pronto. Servicers often encouraged borrowers to use the savings to pay down other debt, thus assuring the homeowner would be unable to catch up and would lose their home.

The reason the Fed inquiry is curious is not that there were abuses; they were rampant. But HAMP was a voluntary program, and to encourage banks to participate, my understanding is there were no penalties for failure to adhere to its requirements, save Treasury could claw back incentive payments. Last August, when there had been a good deal of unfavorable press about HAMP, Treasury officials acknowledged that banks had gamed the program, but then maintained they had no power to do anything.

In fact, there are ways to pursue bank misconduct under HAMP, but it falls under more conventional notions of consumer protection rather than HAMP program guidelines per se. For instance, when the banks provided statements to consumers about how HAMP worked and then failed to adhere to them, that can probably be characterized as a consumer fraud...While it is good to see the normally somnambulant Fed rouse itself, this inquiry is….weird. Why is the Fed in charge, as opposed to Treasury or the OCC? Why doe the Fed suddenly think it has a basis for action on HAMP when the Treasury, which had been under pressure to look serious, said it was hamstrung? The most curious bit is that the Fed seems to have been prompted to act by the Financial Times letting the central bank know it had found some dirt. While this response is likely to be regulatory theater, the Fed seemed to be a tad more responsive to the FT than to most American press. Maybe we should encourage whistleblowers to send their damning information to the pink paper.