Program to Combat Foreclosures has Limited Impact

Law makers and Home owner advocate groups are questioning the effectiveness of the anti foreclosure program of the Obama administration. In an estimate offered to Congress, the Obama administration’s program is said to have fallen short in preventing foreclosures because the Treasury Department has failed to spell out its objectives.

Only 390,000 home owners have received permanent modification ever since the $50 billion program was started in March 2009. It is a small percentage of the three to four million home owners who are targeted to receive assistance as part of the program.

Neil Barofsky official with the Troubled Asset Relief Program (TARP) pointed out that the greatest failure of the program was the lack of clear goals outlined by the treasury department.

The treasury has not established proper goals and bench marks for the program implying that there is no way to estimate that the $50 billion invested in the program has achieved anything like prevention of foreclosures etc. As Senator Chuck Grassley put it- it is not just a lack of transparency or accountability but simply more tax payer money flying out of the window.

The $700 billion TARP program includes $50 billion for the HAMP (Home Affordable Modification Program) which is intended to help home owners remodify their loans for affordable monthly payments. But after 15 months of implementing the program, the number of failed modifications or cancellations far out numbers the successful or permanent modifications.

According to Elizabeth Warren, chair of a panel on TARP in the Congress, for every family that has retained their homes on achieving permanent modification, 10 others have lost their homes to foreclosure. The program had succeeded in achieving 340,000 permanent modifications but 430,000 others who joined the program had been refused permanent modification and suffered foreclosure properties.

Treasury official Herb Allison defended the HAMP. By defining a finite number of target home owners, it would rob the program of its flexibility, he said.

Elizabeth Warren was critical of the mode of the program. She noted that the program was based on fees paid to lenders to renegotiate terms of mortgage. In many cases, lenders continue to make more money if homes are converted to foreclosures for sale. Thus the HAMP program is neither working for investors and home owners nor for the economy, she said.

Herb Allison countered such charges and claimed that HAMP had helped 1.3 million home owners and criticisms were overstated. The program offers lenders cash incentives if they complete mortgage modifications which include reductions in principal and interest rates. He said the department was limited in its ability to force lenders who voluntarily participate in the program to reduce mortgage payments. Hence a number of borrowers fail to qualify for loan modification and end up in foreclosures.