"If we modify loans and we have not yet reached a bottom, what we are doing is setting up borrowers and lenders to fail once again," said Arnold Kling
It was late in the day when my turn came at the hearing on loan modifications, and I made a decision to ignore my written testimony and just wing it. This gave me some practice at trying to compose thoughts at the moment, and in retrospect it had the advantage of allowing me to look Congresswoman Waters and the two other Congresspersons in the room in the eye while I was speaking. I tried to address three issues that had been raised by Congresspersons during the first half of the hearing.
1. Why is the HAMP program working so poorly? My answer was that what Washington was attempting to do was take two complex business processes--loan origination and loan servicing--that have been developed over a period of years, and mash them together, almost reversing the order, into a completely new process, and to do this on the fly, without any allowance for differences in local conditions or individual circumstances. It did not surprise me that this was not working.
I did not say this at the hearing, but I will write here that this is indicative of what is wrong with the Obama Administration. These folks with no management or business experience think that they can make all sorts of changes happen by just writing regulations or laws and snapping their fingers. They have no concept of what a business process is, much less how to develop one and roll it out. If you think HAMP is a fiasco, just wait and see what happens with their health insurance reform.
2. How can the housing market get to a bottom? In this part of my testimony, I made the remark that the WSJ blogger quoted. I argued that we need a natural balance of supply and demand, and that preventing foreclosures only postpones this.
3. Don't these programs indirectly help all homeowners, not just those that get loan modifications? I said this is highly uncertain. I said that if I live in a neighborhood with several foreclosures (and I do), it will not hurt me to have them on the market if I am not planning to sell for eight to ten years. It only hurts me if I need to sell now. But conversely, propping up prices temporarily hurts somebody who wants to buy now. They either will end up buying at an inflated price or not being able to afford to buy at all because of the artificially high prices.
Anyway, that's what I remember myself saying. We'll see if the actual transcript lives up to that.