Foreclosure Follies

So says the New York Times – What do you think?

Recent price data show home values at nearly their lowest levels in the postbubble era, and a coming tide of foreclosures means prices will drop further. Seven million families have lost their homes so far, and another three million foreclosures are expected through 2012.

The ongoing crash is further evidence that the government’s antiforeclosure efforts have fallen short and America’s struggling homeowners need more help.

So what are House Republicans proposing? They want the government to get out of the antiforeclosure business altogether and leave homeowners to fend for themselves. The result would be hundreds of thousands of additional foreclosures and steeper price declines.

House Republicans have introduced bills to eliminate four federal antiforeclosure programs and replace them with — nothing. Here is a list of those programs and ways they could be improved:

HOME AFFORDABLE MODIFICATION PROGRAM No one disputes that HAMP, the Obama administration’s main antiforeclosure plan, is lagging behind its goal to modify troubled loans for three million to four million homeowners. Of the $30 billion intended for the effort, only $1 billion has been spent so far to permanently modify 608,000 loans.

Much of the problem lies with the participating banks. Widespread errors and abuses include the improper delay and denial of modifications, excessive fees, and violations of borrowers’ legal protections. Legislation and regulation that gets tougher on the banks could help fix those problems, including enactment of a transparent process for homeowners to challenge banks’ decisions, stiffer penalties for banks that don’t meet HAMP standards and a streamlined process for converting trial modifications to permanent ones.

THE NEIGHBORHOOD STABILIZATION PROGRAM This Bush-era program provides money to states, cities and nonprofits to buy and rehabilitate abandoned and foreclosed properties. It helps curb the blight that comes with empty properties and, in the process, preserves the value of nearby homes and the municipalities’ tax base.

The problem is there isn’t enough money. Congress appropriated $4 billion in 2008 and $2 billion in 2009; all has been obligated. House Republicans want to eliminate a third round of financing — $1 billion — promised in the financial reform law. They say the program may provide a perverse incentive for banks to foreclose. That is absurd. Banks foreclose when they deem it in their interest, not because a small federal program entices them.

THE EMERGENCY HOMEOWNERS LOAN PROGRAM This $1 billion effort, which has not yet been implemented, would grant loans to homeowners who are unemployed, or who have lost income because of illness. Joblessness is the main reason homeowners fall behind, so alleviating such temporary hardship is crucial to curbing foreclosures. Republicans claim that such loans only encourage indebtedness. The claim is overwrought because the loans are not onerous; they are no-interest and are forgiven in installments over five years for homeowners who remain in the home. A short-term and manageable increase in debt is a prudent way to save one’s home.

F.H.A. SHORT REFINANCE OPTION Many of the 14 million homeowners who are “underwater” — owe more on the mortgages than the homes are worth — are current in their payments. But because they lack equity, they cannot refinance their loans at lower rates. The Federal Housing Administration option would facilitate the much-needed refinancings by insuring the new loans.

The program, which began last fall, got off to a slow start, mainly because of technical problems that have been resolved. Wells Fargo and GMAC/Ally recently announced pilot F.H.A. programs, and other lenders expect to be on board by midyear. Ending the program would squander an important chance to prevent foreclosures.

All of the targeted programs address serious unmet needs. If House Republicans get their way and shut these programs down, all Americans will pay the price.