ften believe that anything Chris Dodd and Barney Frank do in Washington should be accompanied with the Laurel and Hardy theme music. [/b]Case in point: Last week, MortgageOrb reported that Dodd, chairman of the Senate Banking Committee, and Frank, chairman of the House Financial Services Committee, sent a letter to Federal Reserve Chairman Ben Bernanke and the heads of bank regulatory agencies asking them to address whether banks are inflating the value of second mortgages on their balance sheets. Why are Dodd and Frank writing such a letter? In their view, the banks are ruining the potential for the Hope for Homeowners (H4H) program to succeed if their balance sheets do not reflect what they insist is the correct value of second liens. ‘In recent discussions with servicers, investors in mortgage-backed securities and administration officials, it has become clear that one of the most significant impediments to the success of H4H is the unwillingness of subordinate lienholders to extinguish their liens as required for participation in this program, even in return for offers of reasonable compensation,’ Dodd and Frank wrote. ‘This is true, despite the fact that these subordinate liens may have minimal economic value.’ In case you forgot, Dodd and Frank were among the chief architects of H4H, and one can understand their frustration in seeing the program continually misfire since its October 2008 debut. In May, CNN pointed out that H4H fell far short of its lofty goals – Dodd, Frank and their fellow H4H advocates envisioned 400,000 homeowners receiving aid from the program, but only one person was known to benefit from its largesse during its first seven months. In the subsequent two months since the CNN report, another 24 people were known to receive H4H help. Even more embarrassing is the negative publicity for Dodd and Frank's letter. Forbes magazine trumpeted the news as ‘Frank And Dodd Side With Mortgage Investors’ – that is technically correct, but it makes the politicians look like they favor Wall Street over Main Street. That is especially damning for Dodd, who is facing a raucous re-election campaign next year amid charges of being too deep in the financial services industry's pocket. The real failure here is not with the banks or the regulators, but with a fundamental flaw in H4H: It was designed strictly as a voluntarily program. Not surprisingly, many banks didn't want to volunteer to be part of it – the program creates more headaches than happiness for the financial services companies that participate. I can recall a speech that was delivered at the Mortgage Bankers Association's annual convention last fall by Brian Montgomery, assistant secretary for housing and the federal housing commissioner at the Department of Housing and Urban Development. Montgomery noted that the Federal Housing Administration was fielding roughly 1,000 telephone calls a day, while its Web site traffic doubled with H4H inquiries. However, Montgomery noted that his office had the dilemma of placating ‘desperate’ borrowers, because only 100 lenders volunteered to step forward and sign up for H4H. In the months since Montgomery's speech, H4H has been the subject of repeated tinkering in order to make it more attractive to banks. But to date, it has failed to impress the financial services industry. Not unlike many ideas that were hastily assembled when the economy was collapsing in 2008, this was a well-intended mistake. However, the fact that Dodd and Frank are complaining to regulators that the program doesn't work is astonishing. The problem is not about slipshod regulation or nasty banks – for once, we cannot pin the blame tail on the regulatory and banking donkeys. The problem is in the details that Dodd and Frank engineered when they put forth H4H. The program, quite frankly, was badly designed and was doomed to fail from the beginning. I believe that my earlier reference to Laurel and Hardy is appropriate in these circumstances. In viewing Dodd and Frank's bumbling, it is impossible not to look at those two politicians and paraphrase Oliver Hardy's trademark complaint of perpetual exasperation: Well, here's another nice mess you've gotten us into! – Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b]. [i] (Please address all comments regarding this opinion column to hallp@sme-online.co
