Differing views of mortgage relief
Despite the administration's defense of its programs, a House committee voted to end them. Their fate is uncertain.
The Obama administration spent last week defending its two-year-old efforts to reduce foreclosures through mortgage modification and related programs as congressional Republicans ramped up pressure to cut them out of the budget.
The House Financial Services Committee did not buy the arguments, voting Thursday, 33-22, to kill the Federal Housing Administration's short-refinance program and put the brakes on $1 billion in funding for the Emergency Homeowners Relief Program, which was designed to assist unemployed borrowers. The full House is to consider the bills this week.
The fate of two other initiatives, the Home Affordable Mortgage Program (HAMP) and the Neighborhood Stabilization Program, could be decided by the panel this week.
Neil Barofsky, special inspector general for the Troubled Asset Relief Program, testified Wednesday that HAMP "has been beset by problems from the outset, and, despite frequent retooling, continues to fall woefully short of meeting original expectations."
Barofsky called the number of permanent modifications made under HAMP feeble. Figures through January released by the Treasury Department last week showed 539,000 permanent modifications since February 2009.
More than 808,000 trial and permanent mortgage modifications have been canceled, with 145,260 trial modifications still in limbo.
"These permanent-modification numbers pale in comparison not only to foreclosure filings," Barofsky said, but also to the Treasury Department's prediction that HAMP would "help up to three [million] to four million at-risk homeowners avoid foreclosure by reducing monthly payments to sustainable levels."
Acknowledging the program's faults, some observers said ending it abruptly and handing the process back to bankers might only aggravate the nation's economic situation.
"Mortgage-loan servicers who implement these programs are to blame for why help is often too little too late, and without these programs, that problem would worsen," said Mike Calhoun, president of the Center for Responsible Lending in Washington.
With 50,000 new foreclosures each week, "avoiding unnecessary foreclosures and encouraging loan modifications will be key to economic recovery," Calhoun said.
Moody's Analytics Inc. chief economist Mark Zandi said that with an improving jobs outlook and home values close to equilibrium, 500,000 more solid modifications could stop further price declines.
Zandi has long argued that modifications of mortgage principal "are much more effective" and that HAMP "should be modified to incentivize more of them."
John Dodds, director of the Philadelphia Unemployment Project, said the government never should have set so high a target.
"If they had said a half-million modifications, they would have been right," Dodds said. "People complain about the program, but it did more than 500,000 modifications and cost only $1 billion."
HAMP brought housing counselors into the modification process, he said, and, though far from perfect, "it has created a standard industry has to follow."
Two rounds of funding for the Neighborhood Stabilization Program have benefited Philadelphia neighborhoods hit by foreclosures, a local official said.
Its single-family program has been successful at acquiring and renovating foreclosed properties, supporting about 25 qualified developers, with three to 10 units under construction at one time, said Terry Gillen, former executive director of the city's Redevelopment Authority, now Mayor Nutter's director of federal affairs.
To date, the Neighborhood Stabilization Program has financed 98 properties; sold 31 of these to income-eligible buyers; and committed to finance an additional 16 properties in the next 30 to 45 days, Gillen said, representing an investment of more than $20 million in Philadelphia neighborhoods.
There is a multifamily component, too, she said, with 2101 W. Venango St. under construction for $9.2 million with 53 rental units; 32 properties being demolished in targeted neighborhoods; and $5.5 million committed for 50 rental units in Nicetown.
Concern over the fate of the Emergency Homeowners Relief Program prompted Dodds to take a group of unemployed Philadelphia homeowners facing foreclosure by bus to the Washington hearings Wednesday.
HAMP does not cover unemployed homeowners. The relief program was designed to provide bridge loans to pay arrears and make mortgage payments of up to 24 months to homeowners who have had at least a 15 percent drop in income because of involuntary unemployment or underemployment, medical emergency, or serious injury.
Help would come in the form of no-interest loans, forgiven if the recipients remained in their homes for five years. But the money, due to the state Jan. 1, never arrived.
Based on the program's provisions, Dodds' group successfully lobbied in December for a moratorium on sheriff's sales in Philadelphia, estimating that 1,200 properties were at risk.
"Our counselors and the PHFA [Pennsylvania Housing Finance Agency] have been taking applications, and we have a bunch of homeowners on this particular hook," he said.
With three months' worth of homes stacked up, there could be a bloodbath in April - maybe three days of sheriff's sales - if Congress kills the program, Dodds said.
"There is a lot at stake."