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Don't Extend HAMP - End It

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NEW YORK (TheStreet -- The Obama administration is extending the Making Home Affordable Program even though the program has not achieved its goals and they say the housing market has begun a recovery. Known as HAMP, the Treasury launched the program in 2009, saying it would provide relief to 3-4 million at-risk homeowners, helping them avoid foreclosure. The Treasury brags that 1.1 million homeowners have received permanent modifications, but currently only 862,279 homeowners are in active HAMP modifications and as of March 31, 2013, 312,000 have redefaulted on their modifications.

The Treasury originally committed $50 billion for the program and has since reduced that amount to $38.5 billion and has actually only spent $7.3 billion. However, it has cost the Treasury half a billion dollars ($588 million) to administer the program. So, it spent $682 to give these homeowners roughly $8,400 each. The program was scheduled to end in December of this year, but has been pushed out two more years to 2015, even as Treasury Secretary Jacob Lew acknowledges that the housing market is gaining steam.

Financial Services Committee Chairman Jeb Hensarling opposes the extension. He said rather than extend the failed program, the administration should work with Congress to terminate HAMP, rescind its unspent funds and use those billions of dollars for deficit reduction. Of course, the Treasury Department believes by extending the program, more struggling homeowners will be helped. Unfortunately, the Special Inspector General of the TARP program has not seen long-term favorable results from the program. Redefaults from those in the program the longest are rising at an alarming rate. As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at an eye-popping rate of 46.1% and 39.1%.

In its defense, the Treasury Department points out that its redefault rate is lower than other banks and highlights a study done by the Office of the Comptroller of the Currency, or OCC, that supports this. Of course the OCC is part of the Treasury Department and it's obvious the topic of redefaults is a sensitive one since it needed to prove it wasn't so bad. A quick look at JP Morgan's recent quarterly filing, though, shows a redefault rate in modifications between the range of 14-27%. Citigroup didn't break out a percentage, but its redefaults in residential mortgages among those that defaulted after modification dropped from $439 million in March 2012 to $236 million for March 2013. Dropping, not increasing.