The Obama administration’s main initiative to help struggling borrowers avoid foreclosure could soon be killed in the House, where many Republican lawmakers have complained about the program’s lackluster results.
The initiative, known as the Home Affordable Modification Program, or HAMP, aims to reduce borrowers’ monthly payments to affordable levels. When it was launched in March 2009, the administration projected that it would prevent 3 million to 4 million foreclosures before it expired in December 2012.
But the program is far off track, having permanently modified about 521,000 mortgages as of December. Republican lawmakers say the results are not worth the costs, which is why a House Financial Services subcommittee will consider killing the program and three others at a hearing Wednesday afternoon.
The administration and consumer advocates, however, say pulling the program’s funding would destabilize a fragile housing market as foreclosures continue to mount.
“Ending HAMP now, without a meaningful alternative in place, would mean that struggling homeowners would have far fewer ways of coping with the worst housing crisis in generations,” Timothy G. Massad, the Treasury Department’s acting assistant secretary for financial stability, said in a statement sent to the subcommittee Tuesday.
As of February, the program has disbursed $1.04 billion in incentive payments to mortgage servicers that permanently modified loans, said Katie Jones, a housing policy analyst at the Congressional Research Service, in prepared testimony. The Treasury Department had initially set aside $75 billion for the initiative.
Some of that money has since been allocated to other housing programs that are also on the chopping block, Jones said. About $8.1 billion was set aside to enable certain borrowers who are current on their mortgage to refinance into Federal Housing Administration loans if their homes are worth less than what is owed on the mortgage. About 44 loans have been closed under that program. Another $7.6 billion was reallocated to emergency mortgage relief payments to unemployed workers in some states. The other program targeted by Republicans helps communities buy and redevelop foreclosed properties.
All those initiatives would lose their funding under the legislation, which many experts who track such issues say is likely to pass the House. The prospects in the Senate are less certain. But consumer advocacy groups who want to keep the programs in place say they are taking the legislation seriously.
Julia Gordon, senior policy counsel at the Center for Responsible Lending, said killing the entire lineup of foreclosure prevention when tens of thousands of homes are lapsing into foreclosure each month makes no sense. “If something is not working well enough, you fix it,” Gordon said. “You don’t just toss it out.”
A network of faith-based community organizations called PICO plans to gather outside a House office building as the hearing begins to protest the legislation. “Ending these programs would put us back at square one, with Wall Street calling all the shots and struggling families left to the mercies of a soulless mortgage servicing system,” said Lucy Kolin, pastor of Resurrection Lutheran Church in California and a PICO member.
The administration praises its loan modification program for keeping hundreds of thousands of homeowners in their homes, which in turn has helped stabilize home prices nationally.
At a House hearing Tuesday, Housing and Urban Development Secretary Shaun Donovan conceded that the program has not reached as many people as expected. But that does not mean the program should end, he said. “There still are tens of thousands of homeowners who get modifications each month under the program,” he said.
The administration has repeatedly said the program also provided a framework that the lending industry has adopted for its own proprietary modifications.
But Neil M. Barofsky, the inspector general who is overseeing the program and the administration’s $700 billion bailout of banks, said the terms of these in-house modifications have far fewer advantages than the ones offered by the federal program. Some of those terms are not even allowed under the federal initiative, said Barofsky, who is scheduled to testify at the House hearing.
“In other words, it is odd for Treasury to celebrate modifications whose terms would largely be unacceptable from both the borrower’s and Treasury’s perspective,” Barofsky said in prepared testimony. Also, touting these proprietary modifications “undermines Treasury’s defense of the need to continue HAMP. If it truly views these modifications in such an admiring light, it raises the very serious question as to why taxpayers should continue to fund HAMP.”
Barofsky has been a longtime critic of the federal program, which he said has yielded “feeble” results in part because it was rushed to launch without adequate analysis or any measures for success. Although the program has helped make permanent modifications for 520,000 families, that does not make the program itself successful, he said.
Instead, he said, the program should be defined by its failure to reach millions of families who could have been helped by “a better-designed, better-executed and better-managed program.”