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Government watchdogs: Obama failing to help at-risk homeowners

By Ariana Eunjung Cha

The Obama administration's efforts to aid at-risk homeowners in danger of foreclosure is not working and the Treasury Department shoulders some of the blame, the three government watchdogs for the $700 billion financial bailout told a Senate committee Wednesday.

Despite a seemingly ever increasing array of initiatives under the program that went into effect 15 months ago, the number of homeowners being helped "remains anemic," Special Inspector General Neil Barofsky testified before the Senate Finance Committee. It has "not put an appreciable dent in foreclosure filings."

While the program was expected to help 3 million to 4 million homeowners, only 1.2 million homeowners had started trial to their loans that helped make their mortgages more affordable and 347,000 homeowners had received permanent modifications under the Home Affordable Modification Program as of the end of May 2010.

Elizabeth Warren, chairwoman of a separate panel on the bailouts, said that less than one-half of 1 percent -- $247.5 million of the $47.9 billion dollars committed -- of the money allocated for the program has been spent.

"The program has worked very well for the nation's largest financial institutions. For small banks, small businesses and American homeowners, however, the results have been far more limited," said Warren, who oversees the Congressional Oversight Panel on the bailout program.

All three government watchdogs charged with overseeing the bailout -- the special inspector general, the Congressional Oversight Panel and the Government Accountability Office -- said Treasury's failure to act more quickly is hurting the recovery.

"In the case of small banks we have been urging Treasury for more than half a year now to get ahead of the coming problems with commercial real estate," Warren said.

"Treasury has yet to fully implement several of the recommendations we made in July 2009 to improve HAMP's effectiveness, transparency, and accountability," the GAO's Richard J. Hillman said in his written testimony.

"The program has made limited progress, has suffered from inconsistent program implementation, and continues to confront additional challenges," Hillman added.

Barofsky said part of the problem is that Treasury has refused to provide "meaningful goals" for the program that makes it difficult for Americans and their representatives in Congress to assess whether the benefits are worth the high cost of the program.

In the absence of such standards, Barofsky said, "positive comments regarding the progress or success of HAMP are simply not credible, and the growing public suspicion that the program is an outright failure will continue to spread."

By Ariana Eunjung Cha  |  July 21, 2010; 12:55 PM ET
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You can't fix stupid.

Posted by: John991 | July 21, 2010 1:45 PM | Report abuse

Transparency requires accountability, and the Obama administration has shown it wants no part of accountability. But he still talks a good game.

Posted by: Anonymous | July 21, 2010 2:03 PM | Report abuse

"In the absence of such standards, Barofsky said, "positive comments regarding the progress or success of HAMP are simply not credible, and the growing public suspicion that the program is an outright failure will continue to spread.""

But that would also be true about any reports that it's a failure.

Posted by: dubya1938 | July 21, 2010 2:25 PM | Report abuse

The biggest problems come when folks have lost 50%, 60% or more of their home's value and have lost 50%, 60% or more of their income. They go to refinance and still get denied. Banks have puckered up their lending and without the threat of a Federal stick to promote lending in the refi market, banks aren't going to do it on their own. Why would they? they can put those cheap government funds into overnights and make money for free with no risk.

Posted by: BurgundyNGold | July 21, 2010 2:28 PM | Report abuse

Yes you can fix stupid. But stupid has to want to be fixed first.

Posted by: Meepo | July 21, 2010 3:22 PM | Report abuse

Let's start with this

In a bid to stem taxpayer losses for bad loans guaranteed by federal housing agencies Fanny Mae and Freddy Mac, Senator Bob Corker (R-Tenn) proposed that borrowers be required to make a 5% down payment in order to qualify.

His proposal was rejected 57-41 on a party-line vote because, as Senator Chris Dodd (D-Conn) explained, "passage of such a requirement would restrict home ownership to only those who can afford it."

If we look at the last part "passage of such a requirement would restrict home ownership to only those who can afford it"..... Restructuring loans on homeowners who have no ability to pay even the lower payment, makes no sense either.

Now for those who qualify, and can't get a new loan, I too think the program is not meeting its goals, but for the others who got to much house during the boom, hoping to sell at a later date and make money, who knew then they could not afford it, I have no sympathy.

Government can be a safety net for those falling off the bottom rung of the ladder, but only for the bare minimum.

Pouring government money down a drain, because of poor personal decisions, is not a sound choice.

Banks are not supposed to lend money out of some miss-guided kindness. Thier money or ours, the investment needs to be sound.

Posted by: The_Rat | July 21, 2010 3:38 PM | Report abuse

Most of the homeowners realize that these Obama programs are just filthy tricks to get them to pay back the full loan on a house now worth 50% less.

These programs are just attempts to exploit those stupid enough to believe that their lender is on their side. Even forgiving $45,000 in principal could be worthwhile to the bank if you can persuade Joe Six-Pack to pay back $450,000 on a house now worth $280,000

And these homeowners know that the best solution, from THEIR point of view and not the bank's or Obama's, is to walk away and go back to renting. You can easily find a rental just down the street, same style of house, renting for half of their fully adjusted mortgage payment.


Posted by: coakl | July 21, 2010 4:10 PM | Report abuse

I wonder if they will ever get around to dealing with the second main problem with houses that lost value - 2nd mortgages; better known as Home Equity Lines of Credit.

Banks were more than willing to shell out money to people based upon the value of their homes. Now that the values have shrunk, even if you didn't overpay for it or have been in it for many years and now can't afford it, you are screwed.

Most Home Equity Lines of Credit have low adjustable rates. Once the Fed lets rates rise those who are barely holding their own will quickly be forced to sell (which they can't do for what they owe), seek a short sale, or just walk away.

What makes it even worse is the banks that hold these 2nd mortgages have to agree to re-subordinate (agree to put themselves 2nd in line for $$$ after the bank that holds the first mortgage) in order for these home owners to streamline/re-finance their current loans to a lower interest rate.

If they do re-subordinate, the homeowner lowers their interest rate and, therefore, their monthly payment making it easier to pay both mortgages. Unfortunately, what has been happening is the 2nd mortgage holder cuts off their nose to spite their face. They refuse to re-subordinate, or worse, put too heavy a restriction on the homeowner like making them pay all the closing costs associated with the re-finance (which is about $7,500 to $10,000). If the homeowner had that $$$, they would be using it to pay bills and lower debt. But, these banks think that refusing to re-finance means they won't lose their money when the homeowner forcloses - even though they already know the money from foreclosure won't be enough to cover the 2nd mortgage anyway.

O'Bama and company need to focus on the 2nd mortgage homeowners because, after this next wave of toxic homeloans hit (a new set of adjustable rate mortgages are due to expire and spike) the next to fall will be those homeowners with 2nd mortgages and the housing sector will continue to fall to pieces.

Posted by: Anonymous | July 21, 2010 4:28 PM | Report abuse

Just force the rates lower for all who have been paying on time and are current. That'll spend the moneys and help the economy by putting a little extra in the pockets of those who know how to budget.

Posted by: shhhhh | July 21, 2010 5:34 PM | Report abuse

banks are NOT loaning money.. you have to be 100% perfect to get money and NO selfemployed/small business people can get loans. i have called my senators from NC every week and tell them this but no one seems to listen.

Posted by: Anonymous | July 21, 2010 11:06 PM | Report abuse

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