The Government Gums Up The Mortgage Business

The mortgage industry is pointing fingers at the Obama administration Thursday for falsely raising expectations of how the banks can help consumers avoid foreclosure.

What they cannot or will not say is that a public program that benefits a small class of individuals is bound to be hated. And that’s what the administration’s Making Homes Affordable program does.

A BofA executive is set to testify before Congress that the Obama Administration has stoked “confusion and delay” regarding anti-foreclosure plans. The program details are not worked out. Neither banks nor consumers know exactly how to proceed. Few have been helped. And the public backlash toward the banks is on the rise.

But red tape is only a small reason for backlash. Consumers know that the program will only help a select few that are in severe trouble. It seeks the opposite of Obama’s health care goals of help for everyone, and early prevention.

Data released today by RealtyTrac suggest more than 1.5 million properties received a default or auction notice or were seized by banks in the first six months of 2009, up 15 percent from a dismal 2008. Assuming a conservative average house price of $200,000, that’s $300 billion of home mortgage debt that may need to be reworked in the first half of this year alone to avoid foreclosures, or roughly what’s left in TARP.

One in eight Americans is now late on a payment or already in foreclosure, according to the Mortgage Realty Association. And what has Making Home Affordable done so far to help them? It’s offered longer repayment terms, lower interest rates, and in some cases loan modification to about 325,000 — closer to 1 in 1,000 Americans.

The recovery program to-date has mostly helped those who simply stop paying their mortgages. Meanwhile, it offers nothing to arguably the worst victims of the housing crisis. That would be first-time home buyers in the past two or three years who now have negative equity, and are at risk of falling behind on their payments due to a recent job loss. Consider that it is now taking longer for the unemployed to find work again than it did at any point since 1948.

But the Making Homes Affordable plan does nothing to help those individuals. It only helps those who are employed at low or mid-wage jobs who stretched by taking some of the worst adjustable loans out there.

If it can’t help those who really need the help, and if it can only help 1 in even 100 vs. the 1 in 8 who need it, perhaps money set aside for Making Homes Affordable is more equitably spent elsewhere.

Mike Tarsala