South By North Strategies, Ltd.

Interfluidity discusses the change in messaging about the Home Affordable Modification Program (HAMP) used in a recent meeting between Treasury Department officials and selected economics bloggers.

The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

This led Felix Salmon of Reuters to ask the following:

Was HAMP a bait-and-switch? Did Treasury know all along that it was likely to fail in its stated aim, but go ahead with it anyway because of its second-order effects? That seems to be the message they’re sending — that HAMP was a way of encouraging owners to apply for loan modifications, not because they were likely to get those modifications, but just because the sheer fact of applying for the modifications would help out homeowners generally, by reducing the rate of foreclosures, and banks too.
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At the same time, I find it hard to believe that Obama personally was quite that cynical when he announced HAMP. And even within Treasury, I suspect that there was rather more hopefulness and rather less cynicism than the present viewpoint would suggest. On the other hand, if Treasury really did think at the time what it’s thinking now, Atrios is right. It’s undeniably cruel to raise people’s hopes like that if you know those hopes will end up being dashed.

Meanwhile, Rortybomb, who attended the same meeting as Interfluidity, drew this conclusion:

Overall, there seemed to be a sense of “we are done here” from the meeting. Maybe it was the fact that it is August, the informal manner of the meeting and a news cycle is driven by insane things, but there was a sense with the financial reform bill passed, deadlock in Congress and a Federal Reserve tip-toeing around its mandate things were going to slow down and options are more or less removed from the table. Which is a very scary thought with the economy the way it is.