Is Foreclosure Aid Hurting or Helping?

February 22, 2011 (Shirley Allen)
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Texas Republican Randy Neugebauer, the Chairman of the House Financial Services Oversight Subcommittee, says that he believes that the government needs to come to terms with the fact that its foreclosure prevention efforts are failing and actually making the housing market worse.

The Chairman went on to say that the programs need to be shut down because they are preventing the housing market from bottoming out, which is critical before the recovery can begin.

“I really, truly believe that if we will go ahead and quit trying to throw Band-Aids on this housing market … this limbo-like state is prolonging the recovery of the housing market,” Neugebauer said.

The Treasury Department’s Home Affordable Modification Program (HAMP) and other government-sponsored loan modification efforts have ran woefully short of their intended targets. HAMP alone was originally touted by the Treasury Department to have a goal of helping 3 to 4 million homeowners receive loan modifications but based on current estimates will ultimately only result in between 700,000 to 800,000 permanent loan modifications with almost twice as many people dropping out of trial modifications than those who have received permanent modifications.

In a scathing report by the Congressional Oversight Committee, they concluded, “Treasury’s reluctance to acknowledge HAMP’s shortcomings has had real consequences. Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help – all because Treasury failed to acknowledge HAMP’s shortcomings in time.”

The Special Inspector General for TARP said in a report that after two years, many of HAMP’s goals have been largely unmet.

“It is TARP’s failure to realize its most specific Main Street goal, ‘preserving homeownership,’ that has had perhaps the most devastating consequences,” according to SIGTARP. “Treasury’s central foreclosure prevention effort designed to address that goal — the Home Affordable Modification Program— has been beset by problems from the outset and, despite frequent retooling, continues to fall dramatically short of any meaningful standard of success.”

Neugebauer also added, “My perception is right now that most of the people that can keep their homes can keep them, but we are probably postponing the people that long-term aren’t going to be able to keep them. … Some of these crazy programs that we’ve dreamed up, I think we may have to pull the plug on them: HAMP — no more government modifications.”

Neugebauer is also in favor of privatizing the government-sponsored enterprises as well as remove any government guarantee from the mortgage market.

“Somebody asked me what would be the one thing by the end of 112th Congress that would be the most important thing to get done,” Neugebauer said. “I’d have to put getting the mortgage market back on track again and having an overall plan of how we are going to get the taxpayers out of that business.”

Maybe Ronald Reagan was right when he famously said that the most dangerous words in America are “I’m from the government and I’m here to help.”

Tags: foreclosure prevention, loan modifications, mortgage market, congressional oversight committee, financial oversight subcommittee, hamp