Mortgage Aid Plan Wastes Billions

Watchdog Group: Obama's Mortgage Aid Plan Wastes Billionsby Matthew Jaffe

The Obama administration's embattled mortgage aid plan is coming under fresh criticism from a government watchdog who says the program is wasting billions of taxpayer dollars simply to delay -- rather than prevent -- foreclosures.

In the last year, the Treasury Department's $75 billion Home Affordability Modification Program (HAMP) has been blasted by Democrats, Republicans and watchdogs alike.

Despite a flurry of recent changes to the program, the Congressional Oversight Panel, chaired by Harvard Prof. Elizabeth Warren, outlines a slew of criticisms in a new report to be released today.

"Treasury's programs are not keeping pace with the foreclosure crisis," the panel says in the report. "Treasury is still struggling to get its foreclosure programs off the ground as the crisis continues unabated."

Click here to read the full report.

To date, only around 170,000 borrowers have received permanent mortgage modifications under the program.

While Treasury has said that 1.3 million borrowers have been offered trial mortgage modifications, a total of 2.8 million homeowners received foreclosure notices last year, a fact the Panel says indicates that the administration's response is lagging "well behind" the speed of the crisis.


"For every borrower who avoided foreclosure through HAMP last year, another 10 families lost their homes," the panel says. "It now seems clear that Treasury's programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble."

Even if the program fulfills its goal of helping 3 million to 4 million borrowers stay in their homes, the panel said, "the goal itself seems small in comparison to the magnitude of the problem."

Mortgage Aid Program Under Fire

Specifically, the panel finds problems with three areas of Treasury's program: the timeliness of the government's response, the accountability of the program and the sustainability of the mortgage modifications.

It is on the latter where the Panel makes its strongest criticisms.

"Most borrowers who proceed through HAMP will face a precarious future, but their resources will be severely constrained," the panel says. "Many will have no equity in their homes and are likely to question whether it makes sense to struggle so hard and for so long to make payments on homes that could remain below water for years.

"Many borrowers will eventually re-default and face foreclosure. Others may make payments for five years under a so-called permanent modification, only to see their payments rise again when the modification period ends," the panel says.

"The re-defaults signal the worst form of failure of the HAMP program: Billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures."

On the issue of timeliness, the panel says Treasury's continuous changes to the program have caused confusion among banks and could even cause banks to delay loan modifications in the hopes of receiving greater incentives in the future.

Even if Treasury's most recent changes to help unemployed and underwater borrowers prove successful, the panel says, the impact of those changes will not be felt until early next year.

On accountability, the panel says Treasury should be clearer about the amount of taxpayer money set aside for foreclosure prevention programs. The panel also calls on Treasury to closely monitor the performance of banks in helping homeowners, after banks were blasted for giving homeowners the run-around.

Treasury spokeswoman Meg Reilly has responded to the panel's report by highlighting new data for the foreclosure prevention program that will be released on Wednesday.

As of the end of last month, "More than 1.4 million homeowners have received offers for trial modifications and more than 1.1 million borrowers were receiving a median savings of $500 each month," Reilly said in a statement.

"Permanent modifications have been granted to more than 230,000 homeowners and an additional 108,000 permanent modifications have been approved by servicers and are pending only borrower acceptance," Reilly said.

"We strongly agree with the COP's assessment that foreclosures are at an unacceptable high rate, which is why this program has been designed to prevent avoidable foreclosures," Reilly said.

"These programs are not intended to help every homeowner in trouble," she said. "The Administration's programs were designed to help responsible, eligible families keep their homes, not for investors or speculators, and not to save million dollar houses or vacation homes. We also must recognize that we cannot help those who simply bought a home that they could not afford."

Wednesday, the same day Treasury releases the latest HAMP data, the House Financial Services Committee will hold a hearing on HAMP featuring Treasury official Phyllis Caldwell.

Big Banks Against Helping Struggling Homeowners

Big Banks Rebel Against Push to Help Struggling Homeowners
by James R. Hagerty

Some big U.S. banks are pushing back against the idea that they should slash mortgage balances for millions of troubled borrowers.

In written testimony prepared for a hearing in Washington Tuesday of the House Financial Services Committee, some of the nation's top mortgage lenders warned of the risks of relying heavily on forgiving principal as a means of averting foreclosures and argued for concentrating mainly on other methods, such as reducing interest rates.

That may set up a clash with Rep. Barney Frank, chairman of the committee, and other lawmakers eager for more aggressive action to prevent foreclosures. In a letter last month to four big banks, Rep. Frank, a Massachusetts Democrat, argued that "to save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages."

The Obama administration recently announced plans to put somewhat more emphasis on reducing principal in its foreclosure-prevention program.

In their testimony, executives from Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. said reducing principal makes sense for some borrowers with high risk loans. But some of the executives also stressed the risk that principal reductions for some borrowers would lead many others to demand the same treatment.

More than 11 million households are underwater, owing more on their mortgages than the current value of the home, estimates First American CoreLogic, a data provider.

To write down loans enough to bring those debts down to no more than the home values would cost $700 billion to $900 billion, J.P. Morgan Chase estimated in its testimony. That would include costs of $150 billion to the Federal Housing Administration and government-controlled mortgage investors Fannie Mae and Freddie Mac, the bank said.

J.P. Morgan also said broad-based principal reductions could raise costs for borrowers if mortgage investors demand more interest to compensate for that risk. Borrowers probably would have to increase down payments, and credit standards would tighten further, the bank said.

Wells Fargo said principal forgiveness "is not an across-the-board solution" and "needs to be used in a very careful manner." Bank of America said that it supports principal reductions for some customers whose debts are high in relation to their home values and who face financial hardships but that "solutions must balance the interests of the customer and the (mortgage) investor."

Geithner: Taxpayers to Face "Very Substantial" Losses from Fannie/Freddie

Geithner: Taxpayers Are Likely to Face "Very Substantial" Losses From Government's Takeover of Fannie and Freddie


Tim Geithner told the House Financial Services Committee today that txpayers are likely to face "very substantial" losses from the government's takeover of home mortgage giants Fannie Mae and Freddie Mac.

As Shahien Nasiripour notes:

Taxpayers have pumped more than $125 billion into the failed firms -- and on the hook for many more after the administration promised an unlimited source of funds just before Christmas to backstop their growing losses. 

And as Nasiripour points out, Geithner has absolutely no idea how to fix Fannie or Freddie.

Heck of a job, Timmy.