Success of Treasury's Foreclosure Prevention Program Questioned

Oct. 9, 2009 — -- A day after the Obama administration announced it had met the goal of modifying 500,000 mortgage loans three weeks before its self-imposed goal of Nov. 1, a congressional watchdog has raised numerous questions about the program's ultimate success.

The Congressional Oversight Panel found "there is reason to doubt" whether the $50 billion Treasury Department program aimed at modifying mortgages for three to four million homeowners in the next three years "will be possible due to problems with the program's scope, scale and permanence."

"The program is limited to certain mortgage configurations," the panel noted, saying that many adjustable-rate mortgages and interest-only loan resets will be excluded from eligibility. "The foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now."

The watchdog wants the administration to expand the scale of the program.

From July 2007 through August 2009, 1.8 million homes fell into foreclosure and 5.2 million more foreclosures were started. Currently, foreclosure starts outpace trial loan modifications by a rate of over 2 to 1, according to the panel.

The program "may not be large enough to slow down the foreclosure crisis" the panel found, pointing out that even when the program is fully operational, "Treasury officials have stated that the goal is to modify 25,000 to 30,000 loans per week. Treasury's own projections would mean that, in the best case, fewer than half of the predicted foreclosures would be avoided."

In response to the report, a Treasury Department spokeswoman called the panel's feedback "constructive," while touting improvements to the housing crisis since the change in administration last January.

"When President Obama took office, housing prices were falling at an annual rate of 19 percent," said the Treasury spokeswoman, Meg Reilly. "Today, in part because of our response, home prices are stabilizing along with the sales of new and existing single-family homes, and around 3 million Americans have refinanced their mortgages.

"The housing crisis was never going to be fixed overnight," she added. "Instead, it requires a comprehensive strategy focused on providing sustained support for American homeowners. We believe that the Making Home Affordable program is an important part of that strategy and are committed to working with the COP and all of our oversight bodies to ensure that it is as effective as possible in bringing relief to struggling families and stabilizing the housing market."