After enduring months of criticism, the Obama administration has rolled out major changes to its flagging anti-foreclosure program. (Foreclosures rose at the end of last year, with some 1.6 million households in default.) Most notably, to help keep people in their homes, the program will force banks to severely reduce or eliminate mortgage payments from unemployed homeowners. Calculated Risk breaks down the provisions here.
At first glance, the changes seem like an important corrective to a troubled program, especially the new focus on allowing principal write-downs, which just shows that the Treasury folks have been reading TAP. A key concern, though, is that the program still relies on incentives that encourage lenders to make changes in loans -- including increasing payments for getting rid of a second lien -- which hasn't proved to be the most effective policy tool ever. On a conference call today, administration officials said they were confident in their judgment that the program would assist more troubled borrowers, but emphasized that it is targeted at a limited universe of foreclosures and that further data would be needed to see if their projections pan out.
“The enhancements announced today will be helpful to unemployed borrowers and some homeowners who find themselves underwater," John Taylor, the head of the National Community Reinvestment Coalition, said today. "But I’m not optimistic that the incentives will be enough to entice servicers and investors to reduce loan principals. Will they help 7 million people who are at risk of foreclosure? I will be pleasantly shocked if investors step up for half a million borrowers. The real acceleration in the number of foreclosures prevented will come with mandatory principal write-downs.”
Over at Wonkroom, Andrew Jakabovics calls the program "a modern version of the New Deal’s Home Owners’ Loan Corporation," noting the increasing popularity of principal reduction and concluding "insofar as the FHA refi program can largely sidestep the issue of servicer capacity, it has significant potential to alleviate the foreclosure crisis."
-- Tim Fernholz
