Dismal Foreclosure Numbers Could Be the Tip of the Iceberg

By Peter Roff, Thomas Jefferson Street blog

As the U.S. economy collapsed last fall, due in no small part to bad home loans made in the subprime market, the Democrats and the Republicans both made a lot of noise about the need to shore up the housing market to prevent further foreclosures.

Unfortunately, all the talk has produced little positive result. Figures released Thursday show that nearly 1 million properties went into foreclosure in the third quarter of 2009. That's an increase of 5 percent from the previous quarter and nearly 23 percent from just one year ago.

The federal Home Affordable Mortgage Program was created to help forestall foreclosures by helping those who could no longer "afford" to make their monthly mortgage payments qualify for a "loan modification" that could bring those payments down. As it advises on its website, "Millions of borrowers who are current, but having difficulty making their payments and borrowers who have already missed one or more payments may be eligible."

The U.S. Department of the Treasury and the Department of Housing and Urban Development, which jointly administer the program, say it is making real progress toward reaching its goals. HAMP critics say, to the contrary, that the program is not working as advertised and may in fact be having an effect on home ownership opposite of what its sponsors intended.

According to a "white paper" currently circulating in Washington prepared by those who argue the program needs more official oversight, the official HAMP numbers—which purport to show success—are incorrect because they include loan modifications that are not really modifications and the government, particularly the Federal Housing Administration, is not doing enough to help struggling homeowners.

What it should be doing is a matter of considerable debate. If, as the white paper suggests, the Obama administration is putting increased pressure on large lenders to meet the "aggressive loan modification goals" set by the U.S. Treasury, then they may be setting the economy up for another bite of the worm inside the apple, putting the taxpayers at risk once again.

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