The Obama administration said Thursday it would require lenders to allow unemployed homeowners to delay their monthly payments for up to a year without threat of foreclosure.
The announcement came a day after the president made a rare admission of a policy misstep, acknowledging that his policies have failed to provide enough support to struggling homeowners and recognize the scope of the nation’s housing crisis.
The Federal Housing Administration previously required banks to allow FHA borrowers to put off their mortgage payments for a minimum of four months while lenders worked out options to keep people in their homes. The expansion of this program is needed because of “how long it takes unemployed borrowers to find a job,” said Housing and Urban Development Secretary Shaun Donovan, who added he expects the new initiative to reach “tens of thousands of families.”
The Treasury is also asking lenders to offer a similar deal to borrowers under its primary foreclosure prevention program, but it does not have the authority to require the change, administration officials said.
Despite predictions by Obama’s advisers that the housing market would rebound by now, real estate prices are falling once again. And the administration’s past efforts to push banks to modify the mortgages of families who missed their monthly payments have been widely criticized as lacking.
Obama first raised the shortcomings of his administration’s policy Wednesday when a questioner during a town hall event asked what mistakes the president had made in handling the economy.
“The continuing decline in the housing market is something that hasn’t bottomed out as quickly as we expected,” Obama responded.
Later, he added that his administration’s efforts to help struggling homeowners were “not enough.”
“And so we’re going back to the drawing board,” he said.
The housing issue threatens to loom over Obama’s reelection campaign, with foreclosures piling up and real estate markets in turmoil in pivotal swing states such as Florida and Nevada, which voted for him in 2008.
Obama has not often discussed the housing crisis, with much of his time in Washington and on the campaign trail focused on job creation and deficit reduction.
But the issue repeatedly came up Wednesday as Obama conducted his first ever town hall meeting via Twitter.
One person asked in a tweet: “How will admin work to help underwater homeowners who aren’t behind in payments but are trapped in homes they can’t sell?”
Obama responded that “given the size of the housing market, no federal program is going to be able to solve the housing problem.”
He later added: “Some folks just bought more home than they could afford and probably they’re going to be better off renting.”
Much of the criticism of the administration’s housing policy has focused on the Treasury Department’s foreclosure prevention initiative called the Home Affordable Modification Program, or HAMP, one of a series of measures that the administration has rolled out with mixed results.
The program was funded by the financial bailout and carved out tens of billions of dollars to pay banks to modify the mortgages of distressed homeowners, or at least lower their monthly payments.
The administration has said that HAMP helped more than a million families in this way. But critics say that the aid was not long-lasting and that the initiative’s design was too complicated for the industry to implement effectively.