The Congressional Oversight Panel, which keeps a weather eye on the controversial TARP financial-sector bailout program, has released a new report criticizing the Administration's plan to keep troubled borrowers from losing their homes. I've written about the short-comings of the program before, as have consumer advocates, but this is one of the most high-profile criticisms of the program to date.
Although federal foreclosure mitigation programs are still getting off the ground, the benefits of foreclosure modification are likely to outweigh the cost to taxpayers. ... Rising unemployment, generally flat or even falling home prices, and impending mortgage rate resets threaten to cast millions more out of their homes, with devastating effects on families, local communities, and the broader economy. Ultimately, the American taxpayer will be forced to stand behind many of these mortgages. The Panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact offoreclosures and consider whether new programs or program enhancements could be adopted.
The Treasury has issued a statement in response to the report, saying in part
The Administration has taken unprecedented steps to help unemployed Americans - including 79 weeks of benefits, an additional $25 per week in benefits, and a subsidy for COBRA health insurance – that will help alleviate the economic stress caused by increased unemployment rates. While HAMP is open to the unemployed, we continue to study further ways to help unemployed homeowners. While reaching half a million trial modification nearly a month ahead of schedule is an important milestone, we recognize that the next challenge is converting borrowers from trial to permanent modifications. We are intently on working with servicers to ensure that eligible borrowers receive permanent modifications.
When President Obama took office, housing prices were falling at an annual rate of 19 percent. Today, in part because of our response, home prices are stabilizing along with the sales of new and existing single-family homes, and around 3 million Americans have refinanced their mortgages. The housing crisis was never going to be fixed overnight. Instead, it requires a comprehensive strategy focused on providing sustained support for American homeowners.
Nonetheless, this program is not yet doing enough to protect borrowers from foreclosure, and protect the rest of the economy -- and especially homeowners who are making their payments but seeing the value of their homes drop due to unnecessary foreclosures. While Treasury has been working hard to help hundreds of thousands of homeowners, they need to do more, and put more pressure on mortgage servicers to help out the people their bad practices endangered in the first place. I wrote this over the summer:
The banks should modify 1 million mortgages by Nov. 1 -- a doable goal if they continue to ramp up their operations and new servicers join -- or Treasury will give bankruptcy loan-modification legislation (killed by the financial-service industry but now regaining support on Capitol Hill) its full backing and institute new MHA requirements. Beefing up MHA should include measures that would allow homeowners to remain in their home as rent-paying tenants, and provisions to reduce the principal of mortgages rather than modifying the terms of the loan.
It's time for Plan B.
-- Tim Fernholz