It is all part of our great, fake recovery. Billions that in a normal world would go to pay mortgage debt are instead diverted to prop up consumer spending.
A big part of it: Yep, mortgage modifications. The Making Home Affordable modification program — known as HAMP in the biz — rests on a dirty, little secret. Applicants must attest that they are under “hardship” with their current loan. Except that their consumer spending patterns show no such thing. What the HAMPlicants really mean is, “I cannot live the lifestyle I wish and pay my mortgage. Please make my mortgage smaller.”
Here’s where the dirty secret morphs into an utter fiction. The banks — BAC especially so — prefer consumer spending to mortgage payments too. Credit card debt is more profitable than mortgages in the current environment. Federal regulators, not to mention Congress, also have no problem with favoring consumer debt over mortgage debt. Afterall, a big part of an actual, functioning mortgage system would be foreclosures and writing off bad loans — and nobody wants that.
Yet HAMP stands accused of not forgiving debt fast enough to more people. I think you know where this is gonna end.
