Thursday, December 10, 2009
Snohomish County Blog Obama's Failed Foreclosure Prevention Plan
A growing list of experts calling for the Obama's administration to scrap its failed foreclosure-prevention plan in favor of one that would actually help troubled homeowners keep their homes. The Congressional Oversight Panel that Warren heads issued a new report Wednesday, concluding that the government's $700 billion bailout program did in fact help stabilize the financial system -- but has largely failed to boost lending or prevent foreclosures. The latest report spelled out just how dramatically the administration signature foreclosure effort, called the Home Affordable Modification Program, has fallen short: • Nationwide, only 10,187 homeowners have received permanent mortgage modifications. That's only 4.7 percent of those enrolled in three-month trial plans. In October, Herbert M. Allison Jr., the Treasury Department's assistant secretary for financial stability, told the panel that Treasury had internally forecast that "up to 75 percent" of trial modifications would achieve permanent status. • Of the 79 mortgage services enrolled in the program, only 10 have received payment for successfully modifying loans on a permanent basis. They earned $2.3 million for their efforts. By contrast, the administration had set aside $50 billion in bailout money for modifications on mortgages not owned by government-backed mortgage giants Fannie Mae and Freddie Mac. The data is through the end of October. The administration launched its foreclosure prevention drive in March. HAMP was supposed to help three to four million homeowners avoid foreclosure by modifying their mortgages, enabling them to make lower monthly payments. But with 10 percent unemployment (a 26-year-high), mounting foreclosures and as many as one third of all homeowners with a mortgage currently owing more on the mortgage than the underlying property is worth, the program simply "isn't working," Warren said. "The program that Treasury has designed does not have the scope, the scale, or the permanence needed to deal with the foreclosure problem," she said. It's a stinging indictment of a program launched to great fanfare not even a year ago, as President Obama sought to help aggrieved homeowners on Main Street who had watched for months as massive infusions of taxpayer dollars went to Wall Street instead. Even though the Treasury Department every month touts the numbers of homeowners signed up for trial plans as a sign of progress, Warren's panel notes in its report that monthly foreclosures still far outpace the number of new trial modifications. "The Panel emphasizes that it is the number of foreclosures averted, not the number of trial modifications offered or even trial modifications commenced, that is the proper metric for evaluating HAMP," the report reads. "As currently structured, HAMP appears capable of preventing only a fraction of foreclosures." By contrast to the program's target of three or four million homeowners helped, the report notes: "Projections for foreclosure range from 8.1 million over the next four years to as high as 13 million over the next five-plus years." So even if Treasury actually hit its target the program would still only be dealing with a third of projected foreclosures. A major source of the panel's frustration is the program's failure to adequately address the problems of unemployed homeowners and those with negative equity. Those without a job typically don't have enough income to qualify for the program. And what homeowners who owe more on their houses than they are worth really need is to have their total debt reduced. But HAMP doesn't incent lenders to reduce principal. So "underwater" homeowners might see their interest rates reduced through HAMP, but if their principal remains unchanged, they are at increased risk of defaulting again. "No one is helped by a program that kicks foreclosures down the line. The panel's report suggests that Treasury (like the FDIC is doing) should consider principal reductions.