A Task For US Government: Suspending Foreclosures In The Gulf

Citigroup (NYSE: C) said it would halt foreclosures in areas 30 miles or less from the Gulf oil spill and suspend evictions for people in homes in the region for 90 days.

The federal government has tried to do something, anything, to stanch the rate of foreclosures in America to stabilize the housing market and keep people in their homes. The Administration’s $75 billion mortgage modification program has been a failure, according to the Congressional Oversight Committee and almost every housing expert and economist. Less than 1 million people have had monthly payments permanently lowered.and recent data from Fitch shows that about 65% people who get the modifications default within 12 months after getting their deals.The government’s mortgage aid program has been an abysmal failure, but it may be able to make a comeback. It can take Citi’s lead in helping Gulf residents and expand that program to every home in areas that will be affected by the spill. That will include at least four states and perhaps many more. The Administration could channel  some of the unspent $75 billion to people who really need it. They are also people who can be easily identified because they live within a few miles from where oil has washed up onshore.

The program could be extended to those who can prove that the catastrophe cost them their jobs. That could be tens of thousands of mortgages.

Sometimes big government is most successful when it thinks small. Modifying millions of mortgages is hard because it relies on scores of lenders and millions of homeowners.  Deciding who qualifies is difficult. Working on home loans in the Gulf region requires less analysis, or so it would seem. The Administration could point to an important success by helping those hurt financially by the spill. It would also have a program that could actually do some good.

Douglas A. McIntyre