By Renae Merle
Washington Post Staff Writer
Wednesday, August 26, 2009
Many of the lenders eligible to receive billions of dollars from the government's massive foreclosure prevention program helped fuel the housing crisis by issuing risky subprime loans, according to a report to be issued Wednesday by the Center for Public Integrity.
Under the $75 billion program, called Making Home Affordable, lenders are eligible for taxpayer subsidies to lower the mortgage payments of distressed borrowers. Of the top 25 participants in the program, at least 21 specialized in servicing or originating subprime loans, according to the center, a nonprofit investigative reporting group funded largely by charitable foundations.
Much "of this money is going directly to the same financial institutions that helped create the sub-prime mortgage mess in the first place," Bill Buzenberg, executive director of the center, said in a statement.
The report comes as the Obama administration is prodding lenders to do more to help borrowers. Less than 10 percent of delinquent borrowers eligible for assistance through Make Home Affordable have received help, according to Treasury Department estimates released this month. The administration is aiming to more than double the number of borrowers helped under the program to 500,000 by Nov. 1.
"Mortgage lenders and servicers have been reluctant to participate in foreclosure prevention programs despite their role in creating the subprime debacle. Intense pressure from Congress and the White House hasn't worked, either," the report said. "The stick has not been effective, so the Obama administration is offering a carrot -- billions of dollars in incentive payments to lenders and loan servicers to encourage them to participate."
The report has drawn fire from lenders. It oversimplifies the causes of the housing crisis and misses the complexity of the markets, said Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents some of the nation's largest lenders.
Lenders are working hard to help millions of homeowners through the federal program and other foreclosure prevention efforts, Talbott said.
"Even as unemployment triggers more foreclosures," he said, "the industry continues to work with homeowners to provide solutions."