Last week, I noted that 75 percent of metro areas have seen an increase in foreclosures, but that lawmakers have been reduced to pleading with banks to perform mortgage modifications, as the Obama administration’s signature modification program has been a big flop. The Home Affordable Modification Program (HAMP) has had more homeowners drop out of it than successfully receive a permanent mortgage modification.
As the Huffington Post’s Shahien Nasiripour and Arthur Delaney laid out, HAMP “has fallen short of its goals — rather than significantly and permanently reducing home foreclosures, it is only delaying them.” Today, the administration is trying to do something about the problem:
As many as 50,000 struggling homeowners in five U.S. states with high unemployment may receive help from a special $600 million federal fund intended to head off foreclosures. State housing agencies in Ohio, North Carolina, South Carolina, Oregon and Rhode Island can use money from the Treasury Department’s “Hardest Hit Fund” for foreclosure mitigation that was announced in March.
According to Reuters, “some of the programs that states proposed will help unemployed or under-employed people keep up with their mortgage payments. Others will try to assist homeowners who are facing negative equity by reducing the principal of loans that they owe or will be used to finance short sales of homes to avoid foreclosure.”
These ideas — particularly reducing loan principal — are good ones, but I have to wonder why the amount of money dedicated to them is so small and why this response is limited to states with the worst unemployment. After all, as David Dayen pointed out, just $250 million of the $75 billion promised to HAMP has been spent. There’s quite a bit of money to facilitate more intensive foreclosure prevention efforts across the country.
“We’ve got a huge amount of people who are under water that aren’t going to be made whole,” said economist Dean Baker. “If you can’t persuade the banks to do a write-down that will allow them to stay in their homes, then you haven’t done that person a favor.” And while Treasury has talked a good game on eventually getting around to principal reductions, up to this point “as few as 0.1 percent of mortgage modifications initiated under HAMP involve reductions of principal.”
Foreclosures remain one of the key problems undermining the economy, yet the policy response has been incredibly lackluster. These small ball initiatives are certainly going to help some individual homeowners, but they aren’t on a grand enough scale to address the wider issue.