March 01, 2011 05:33 PM UTC

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.