The Department of Housing and Urban Development, attempting to save its troubled home-ownership program for the poor, has quietly been giving extra help to some participants to try to keep them from defaulting on their mortgages.
Under this "assigned mortgage" program, HUD takes over problem mortgages from the original lenders, and works with the homeowners to devise payment terms they can meet.
But the program isn't working very well, with the result that HUD has acquired thousands of mortgages on which it is reluctant to foreclose.
"If we . . . continue that way, we are going to become the nation's biggest landlord," said Milton Francis, HUD's deputy assistant secretary for single-family housing and mortgage activity.
As of January, HUD held 10,022 single-family-home mortgages valued at more than $151 million. At the same time, more than $17 million in delinquent mortgage payments had not been collected, according to a recent audit by Congress' General Accounting Office.
"It's a rat's nest," said Francis in an interview. "At least 48 percent of our assigned mortgages are in default . . . . The reality is that we ain't kicking anybody out at the moment. But that's not the way we can continue."
The program grew out of HUD's efforts in the 1960s to help low income inner-city residents own homes by insuring their mortgages.
By 1976, especially in cities like Detroit, thousands of HUD-backed mortgages were in default and thousands more homeowners had either abandoned their property or had been evicted after foreclosure.
Millions of federal dollars had been lost.
To stem the tide of foreclosures, abandonment and evictions, and the further decline of affected neighborhoods, HUD started the assigned-mortgage program in 1976.
HUD officials say they are streamlining their assigned-mortgage accounting procedures and are beginning to recoup some of the losses. But the defaults problem is threatening to get bigger because of circumstances beyond HUD's control, Francis said.
"If it's true that we are in a recession, then we got some big problems coming, especially in cities like Detroit," Francis said. "If Chrysler Corporation or the Ford Corporation closes down in Detroit, for example, we're going to have a tremendous rate of mortgage defaults."
Many of these new defaults could become eligible for the assigned-mortgage program, he said. But the question is whether the homeowners will be able to resume their full mortgage payments, Francis said.
"Ultimately, we got to face up to the fact that people who have a department-insured mortgage loan, in the event of default, don't have a free home forever . . . . If we don't we'll wind up turning what is supposed to be an insurance program into another social service program," Francis said.