Government Anti-Foreclosure Program Falters

The Administration’s anti-foreclosure program, part of the $75 billion HAMP initiative, has posted worse results as time has passed. More than 91,000 homeowners cancelled their government loan modifications in June, while about 39,000 received new modifications.

The plan was meant to keep 4 million people facing foreclosures, and a new report says that number is now “meaningless.”  About 530,000 of the 1.3 million government modifications have been cancelled since the program started 16 month ago. The inspector general of the TARP says this is atrociouss, and calls the program anemicThe failure can be blamed on the economy, continued trouble in the housing market, and unemployment. That would oversimplify the issue. While foreclosures in the US run at about 300,000 a month, and more than 11 million mortgages are underwater, the mortgage loan program still suffers from complex paperwork and lenders who are ambivalent about changing home loans. Defaults fees bring banks significant revenue. Mortgage modifications probably less so.

People are still willing to default on mortgages even if their income is not a problem. Underwater mortgages are an incentive for homeowners to turn their keys back to their banks. Many people lament that their homes will probably never give them any equity that can be used for retirement or other significant financial needs.

The federal government’s loan modification program will not work so long as banks do not have a major financial incentive to give people lower monthly payment provisions. And, many people will not stay in their houses unless their value of their principals is reset so they have some chance of eventually selling at a profit.

The loan modification program is badly broken, but the housing market and joblessness are hardly the only causes.

Douglas A. McIntyre