Oversight Panel Criticizes Mortgage Modifications For Falling Short

By Kyle LaFleur

The Congressional Oversight Panel held a meeting Wednesday to discuss the Treasury Department’s role in foreclosure mitigation programs under the Trouble Asset Relief Plan (TARP). The Treasury Department, which was represented by the department’s Chief of Homeownership Preservation Office Phyllis Caldwell, was criticized for the modest number of foreclosures prevented by these programs.

“Recently as the goal of preventing three to four million foreclosures has appeared increasingly distant, the Treasury has redefined as saying the goal now is offer temporary mortgage modification to three to four million homeowners,” said departing Delaware Senator Ted Kaufman (D), the panel’s chairman.

Kaufman warned that of these three million modification offers granted as few as 100,000 foreclosures would be prevented, which he felt deviated the program’s measurement of success from the ultimate goal of keeping homeowners in their homes. 

“In many ways its like a major league baseball batter pledging to swing at every pitch,” Kaufman said. “What matters is not how often you swing, what matters is how often you get on base.”  

In defense of the Treasury, Caldwell highlighted the Home Affordable Modification Program (HAMP) which was unveiled in 2009 and aids homeowners in bankruptcy by allowing them to modify their mortgage before they fall under foreclosure. Caldwell said the program has given struggling homeowners relief, used tax money efficiently and transformed the operations of the entire mortgage system.

“In the first quarter of 2009, nearly half of mortgage modifications increased borrowers’ payments or left their payments unchanged,” said Caldwell. “By the second quarter of 2010, 90 percent of mortgage modifications lowered payments for the borrower. This means homeowners are receiving better solutions.” 

According to Caldwell, it was still the department’s goal to reach three to four million homeowners with the expansion and enhancement of programs to respond to the housing crisis.  

“Our programs targeting unemployment and negative equity are just underway, and we continue to focus our efforts on reaching as many homeowners as possible,” said Caldwell.

In the 18 months since HAMP was created, panel member Damon Silvers said there have only been 467,000 modifications compared to seven million homeowners struggling with the possibility of foreclosure. Silvers described this number as a good thing that unfortunately “does not appear by any means, by any measure to be good enough.” 

Creating Jobs Key To Preserving Homeownership, Say Experts

By Benny Martinez
University of New Mexico/Talk Radio News Service

The Home Affordable Modification Program (HAMP) is not gaining as much traction as expected, said a panel of experts during a hearing on Thursday before the House Committee on Oversight and Government Reform.

The HAMP program, authorized by the Department of Treasury in 2009, is a loan modification program designed to reduce at-risk borrowers' monthly mortgage payments.

According to National Community Reinvestment Coalition CEO John Taylor, HAMP is “simply failing to make a difference” in the lives of American homeowners.

Taylor said that HAMP and its complementary program, the Home Affordable Refinance Program (HARP), were initiated to assist roughly five million permanent loans. Currently, Taylor said that only about 300,000 have been modified or refinanced, thus illustrating how HAMP and HARP have so far failed.

Taylor said he believes another reason behind HAMP’s stalled progress is that the Treasury Department has only used $22 billion of a near $75 billion program budget.

“Why they’re sitting on these funds is beyond belief,” he said.

Cato Institute (Washington, D.C.) Director of Financial Regulation Studies Mark Calabria said that the failure of these programs coupled with adverse income shocks are the underlying reason for the lack of improvement in the housing sector.

“About 50 percent of foreclosures today are driven by job loss [and] there is absolutely no way we can address the foreclosure situation without addressing the job situation,” Calabria said.

“Foster an environment that is conducive to private sector job creation, and the foreclosure problem will follow that,” assured Calabria.

Congressional committee stresses the importance of reducing foreclosures

Rep. Barney Frank (D-Mass.), Chairman of the House Financial Services Committee, said he has seen “encouraging signs,” in efforts to reduce foreclosures in the U.S. During a Financial Services Committee hearing today, Frank said it would be very important to the economy to reduce foreclosures and to use the rescue plan to put money into the economy.

Chairman Frank stated that taxpayer dollars wouldn’t be used to help others “pay their mortgages,” believing there was “zero likelihood” that that would happen. Frank also felt that decisions on the housing crisis are “unmakeable” in government currently, adding, “Someone has got to have the authority to make a decision.”

Rep. Spencer Bachus (R-Ala.) said that while the U.S. should work to reduce foreclosures, “We need to be careful to prevent all foreclosures.” Bachus stated, "If a homeowner is under water, if the house is worth substantially less than the mortgage, it is predictable that many are going to walk away from their obligation. In fact, we are seeing a good percentage of foreclosures in which the homeowner is under water and they are walking away." He added, "I don’t see any practical way of preventing that."

While Bachus agreed that the government could not allow an economic collapse, he asked “Where does it stop?” Bachus did praise government’s intervention in the crisis to this point, saying “So far, we’ve made a terrible situation better,” but advocated the need for an "exit strategy."

Rep. Paul Kanjorsky (D-Pa.) made a reference to homeowners, saying that it was important to “keep them afloat.” He added that current foreclosure rates have “decimated some communities.”

According to Rep. Randy Neugebauer (R-Texas), it is important not to “encourage borrower behavior that is not appropriate.” He did think that if dialogue between borrowers and lenders is encouraged, “there will be some effort” to keep people in their homes.

Benjamin Allensworth, Senior Legal Counsel for the Managed Funds Association, said “the wave of foreclosures has placed downward pressure on home prices, which in turn has eroded home equity and consumer confidence in the mortgage market.” He advocated “effective mortgage modifications over foreclosure whenever possible.”

Thomas Deutsch, Deputy Executive Director of the American Securitization Forum, felt that government assistance in the crisis is vital and while mortgage lenders have made efforts to prevent “avoidable foreclosures,” “Macro economic forces bearing down on an already troubled housing market are simply too strong for private sector loan modification alone to counteract the nationwide increase in mortgage defaults and foreclosures.” Deutsch felt the housing crisis could not be resolved without government assistance.

The McCain campaign has a 'new housing plan' to save our economy

The campaign of Senator John McCain (R-Ariz.) says they have an answer to the current housing crisis. This answer comes in the form of the "American Homeownership Resurgence Plan". Doug Holtz-Eakin, McCain-Palin 2008 senior policy adviser, held a teleconference to outline this new plan. Holtz-Eakin said the plan would provide direct help to home owners, allowing them to stay in their homes and avoid foreclosures that would damage he property values in their neighborhoods. The plan would also provide to the housing market lower interest rates, around five percent.

Holtz-Eakin said, "Starting with the home owner and moving up, you accomplish some of the objectives of the financial stabilization plan that we've seen come out of congress and proposed by the administration in recent weeks. Senator McCain believes this is exactly the right kind of policy, providing direct help to homeowners, at the same time supporting the financial markets and keeping them from further damaging the availability of credit to mainstream America, one of the real threats to the economy at this time." Funding for the initiative would come from authorities, including the $300 billion worth of refinance capacity provided by the Federal Housing Administration (FHA) and the $700 billion provided by the Treasury Department to Congress.

Even though the FHA and the Treasury Department already have the authority pursue this plan, the McCain campaign believes stabilizing the housing markets haven't really been publicly targeted, and were originally only geared to help four-hundred or five-hundred thousand homeowners. The new plan proposes to aid homeowners on a larger-scale than the FHA and Treasury Department have planned, and therefore be a more effective supplement to the housing crisis response.

Housing market hit is worst in years

When the housing market is down, the "whole economy gets hurt," said Rep. Barney Frank (D-Mass.)in a hearing today. The Financial Services Committee met to discuss the problems and possible solutions to the current housing market.

Frank added that the federal government's feelings are not only of sympathy to those in foreclosure. He said that some people have committed to mortgage policies out of their price range.

Rep. Jeb Hensarling (R-Texas) said that the United States needs to "preserve the paycheck" of its homeowners. Hensarling continued by stating that no one would want to be a seller in this market.

Sheila Blair, Chairman of the Federal Deposit Insurance Cooperation, said the current housing market is due to a "complex set of interrelated causes." She said the housing market in the United States had the most severe drop of the past 60 years.

Brian Montgomery, Chairman of the Board of the new "Hope for Homeowners Program," said that the program is slated to be ready to open on Oct. 1 of this year. He said the goals of the program are to help improve homeowners' chances of refinancing their loans, mitigating monetary losses for both buyers and sellers of mortgages, and to reduce the number of foreclosures nationally.