House Republicans look to terminate foreclosure programs

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by: allyncooper

(An honest report–but what’s the alternative? – promoted by Colorado Pols)

In the ongoing effort to “trim the fat” in the federal budget and terminate programs that are deemed ineffective, House Republicans are looking to eliminate housing programs that were put in place to address the foreclosure crisis.

House Financial Services Committee Chariman Spencer Bachus (R-Ala.) has scheduled hearings this Thursday on legislation that would terminate three programs that are supposed to help struggling homeowners avoid foreclosure and another designed to buy up and rehab foreclosures in distressed communities.

The program most under fire is the Obama administration’s ambitious Home Affordable Modification Program (HAMP) that was funded through the original TARP program. Launched in March of 2009, the program was supposed to assist up to 7 million homeowners avoid foreclosure by providing lending institutions incentives to modify mortgages to lower the interest rate and thus the monthly payment.

However the program has fallen far short of its goal. Last year the Inspector General for TARP issued a report saying there have been fewer than 400,000 permanent modifications through June of 2010. The program has been criticized as unwieldy and cumbersome, with financial institutions not effectively participating and homeowners not following through on program requirements resulting in a high rate of defaults.

The Inspector General’s report gives critics ample ammunition for termination of the program, saying “the refusal to provide meaningful goals for this important program ………makes it difficult to assess whether the program’s benefits are worth its very substantial cost”. The report goes on to say the program “has failed to put an appreciable dent” in foreclosure filings this year (2010).

As of the June report of 2010, the HAMP program had accomplished fewer than 400, 000 permanent modifications. Part of the ineffectiveness of the program is it does not address what is now the bigger problem in the housing market – the devaluation of housing prices. A growing number of homeowners find themselves “underwater” owing more on their mortgage note than their house is worth (two-thirds of all homeowners with loans on their property are underwater in Arizona). And the program does nothing to help someone who has lost their job and becomes another statistic in the stubbornly high unemployment rate.

Two other programs targeted for elimination by House Republicans is an FHA mortgage refinance program (just 35 applications by December of 2010) and a HUD Emergency Mortgage Relief program funded at $1 billion.

The forth program that could be axed is the Neighborhood Stabilization Program (NSP) administered through the HUD Community Development Block Grant program (CDBG) . NSP was hatched by the Bush administration in its first response to the foreclosure crisis and initially provided $ 3.9 billion for block grant communities to buy up already foreclosed properties in targeted neighborhoods, rehab the properties, and put them back on the market. The theory was to address the blight and decline of property values in the targeted neighborhoods. More funds were added to NSP by the Obama administration (usually referred to as NSP2) funded by the stimulus bill.

The City and County of Denver, Aurora, and Adams County as entitlement communities under their CDBG programs are administering the NSP funds, so the Republican plan to kill the program and rescind the $1 billion appropriated but not yet spent will no doubt have local ramifications.

Given the ongoing housing crisis in which it seems little done so far has helped, the House Republicans have ample argument for eliminating these programs which by objective analysis have proven marginal in addressing a problem that has defied a solution for the past several years and continues to dampen economic recovery. It will be interesting to see how this plays out on Capitol Hill this week.

6 thoughts on “House Republicans look to terminate foreclosure programs”

ohwilleke says:

March 1, 2011 at 10:45 pm

The mortgage modification approach that involves no federal funding and would produce dramatically better results would be changing the bankruptcy law to allow the cramdown of residential mortgages, something that would give banks an incentive to be reasonable outside bankruptcy as well as they have been in the farm lending area where cramdowns are available. HAMP and the FHA mortgage refinance program were both duds.

Community development block grants, in general, are basically ways to use federal taxes to raise money for local government to do what it thinks needs to be done. But, state and local governments have the power to tax if they think the program that were funded with these grants are worthwhile.

Fortunately, the disasterously expensive homebuyer’s tax credit that produced very few results at great cost has expired of its own accord.

The place where the housing and urban development need is probably greatest right now, and where funds might be best concentrated, is the very strained Section 8 rent subsidy program.

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1. allyncooper says:
  
  March 1, 2011 at 11:17 pm
  
  But it wasn’t because of the resistance from the banks and lenders. The programs that aren’t working may have been well intentioned, but don’t address the continuing problem of property devaluation. Cramdown is the only thing that would at this point, but seems politically unfeasible.
  
  NSP funds were funneled through the community CDBG programs as supplemental grants because many of the entitlement entities already had housing rehabilitation programs in place as a program within their CDBG grant, so the structure and experience was there to supposedly get the NSP up and running quickly.
  
  I haven’t seen any program evaluation feedback on how NSP funds are working (it may be too soon), but my guess is the impact will be negligible given the scope of the problem.
  
  I thought a better use of the money would have been to inject it into local banks earmarked for loans to investors to buy up foreclosed properties they would rehab in the private sector. There is an active group of investors doing this, but right now one third of all residential closings are cash deals because of credit restrictions. Access to financing would enlarge this group and hopefully reduce the inventory of foreclosures, which keeps depressing prices.
  
  The buyers tax credit did create a sales bump, but it was like putting a band aid on a gushing wound.
  
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2. Phoenix Rising says:
  
  March 2, 2011 at 12:20 am
  
  Those grants are not generally given to places where local taxation is the answer, and we are using them.
  
  But I don’t think you’ll find many people complaining about getting rid of the various HAMP type programs – they’ve been criticized from all quarters as being ineffective and largely untracked. I hope Republicans aren’t touting getting rid of the HAMP program as a major cost saver – as noted, many of the funds haven’t been distributed, so there’s not as much deficit reduction there as there might have been.
  
  I can only add my agreement on cramdown, but Republicans and some Democrats have blocked that in the past at the behest of the banks – I don’t see it happening now, but would be pleasantly surprised if House Republicans put it up for a vote.
  
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Diogenesdemar says:

March 2, 2011 at 2:35 am

should be eliminated.

At the very least, I think it was stupendously naive of the economic policy minds in the Obama Administration to think that the banks would use these programs as intended, to actually help the American public. There’s a lesson to be learned here — the banks, after deliberately creating all this mess and lining their pockets in the process, were never going to participate in any meaningful way towards assisting anybody that were not their own board members or investors.

It should be a lesson as to the type of hands-on-your-throat regulation that is really needed if you want to keep these fuckers from ruining the country again.

Use the money to regulate the banks forecefully — partnership is not an option.

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1. Sir Robin says:
  
  March 2, 2011 at 3:41 am
  
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2. DavidThi808 says:
  
  March 2, 2011 at 6:35 am
  
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