Foreclosure prevention fund a “colossal failure,” special inspector says
When it comes to President Barack Obama's promise to create a foreclosure prevention fund, he's kept to the letter of law, but his administration has completely failed to meet its spirit. For that, we're moving this our rating to Promise Broken.
Let us explain.
Back during the campaign, Obama said he would create a $10 billion fund to help homeowners facing foreclosure. "Too many families are unable to refinance because no one will lend to them, and they are unable to sell their homes because the housing market has fallen," reads as statement of policy from Obama's 2008 campaign. "As president, Obama will fight to ensure more Americans can achieve and protect the dream of home ownership." We named it one of our top promises, among the most significant campaign pledges Obama made.
And soon after his election, Obama outdid the promise of $10 billion, creating a foreclosure prevention fund that totaled $75 billion, paid for with funds from the Troubled Asset Relief Program (TARP) and the government sponsored mortgage giants Fannie Mae and Freddie Mac. Officials said the fund could help 9 million homeowners. We gave Obama a Promise Kept.
But as many months went by, the program never lived up to its promise. As of January 2011, the program had given permanent loan modifications to only about 500,000 homeowners.
The news website ProPublica has extensively investigated the program and reached a number of dismal conclusions.
"With millions of homeowners still struggling to stay in their homes, the Obama administration"s $75 billion foreclosure prevention program has been weakened, perhaps fatally, by lax oversight and a posture of cooperation—rather than enforcement—with the nation's biggest banks," ProPublica reported. "Those banks, Bank of America, Wells Fargo, JPMorgan Chase, and Citibank, service the majority of mortgages."
As we were considering whether to change the rating on this promise, the special inspector general for the Troubled Asset Relief Program, Neil M. Barofsky, penned a damning op-ed in the New York Times, calling the housing program "a colossal failure," blaming a lack of enforcement on the part of the U.S. Treasury Department.
"Treasury Secretary Timothy Geithner has acknowledged that the program ‘won't come close' to fulfilling its original expectations, that its incentives are not ‘powerful enough' and that the mortgage servicers are ‘still doing a terribly inadequate job,;" Barofsky wrote. "But Treasury officials refuse to address these shortfalls. Instead they continue to stubbornly maintain that the program is a success and needs no material change, effectively assuring that Treasury's most specific Main Street promise will not be honored."
The evidence has been mounting for some time that the foreclosure prevention fund has fallen far short of its goals. If it ever rights itself, we'd certainly be willing to reconsider our rating. But today, it hasn't helped many homeowners faced with losing their houses. We conclude it's a Promise Broken.
ProPublica, Govt's Loan Mod Program Crippled by Lax Oversight and Deference to Banks, Feb.17, 2011
ProPublica, Dems: Obama Broke Pledge to Force Banks to Help Homeowners, Feb. 4, 2011
ProPublica, Eye on Loan Modifications, various reports on various dates
The New York Times, Where the Bailout Went Wrong, by Neil M. Barofsky, March 30, 2011
Foreclosure fund has lackluster results so far
Back in February, we rated Obama's promise to create a $10 billion fund to help homeowners as a Promise Kept. In fact, we noted, Obama actually exceeded his promise, sending $75 billion to the fund because the crisis had worsened since the campaign of 2008.
The program, called the Home Affordable Modification Program, or HAMP, has been operating for almost a year now. The idea was that lenders would refinance loans for troubled homeowners, and the federal government would make a small payment to the lender as an incentive.
But the problem is that it's not working as hoped. Out of 759,058 mortgages modified on a trial basis through November, only 31,382 homeowners have received permanent modifications. For perspective, Moody's Economy.com estimated that 2 million homes were lost to foreclosures and short sales in 2009, and another 2.4 million will face foreclosure in 2010.
Criticism of the program has been widespread. "HAMP has made only limited progress for nine months now, and the residential foreclosure crisis continues to mount," said Richard Neiman, a member of the congressional oversight panel that monitors the program, in a story by McClatchy Newspapers.
''For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass," said Mark Zandi, chief economist at Moody's Economy.com, to the New York Times.
The Obama administration continues to support the program, saying that the modification program is helping some homeowners
For our purposes here at PolitiFact, it's hard to let our Promise Kept rating stand when the fund has fallen short of its intended promise. We're going to roll back this promise to a Compromise, and keep monitoring the situation to see if how the mortgage modification fund ultimately concludes.
New York Times, U.S. Loan Effort Is Seen as Adding to Housing Woes, Jan. 1, 2010
McClatchy Newspapers, Homeowners often rejected under Obama's home plan, Dec. 17, 2009
FinancialStability.gov, Obama administration releases new data on modification program, Dec. 10, 2009
Obama unveils plan to aid homeowners
What a difference a year makes. In 2008, presidential candidate Barack Obama talked about a plan to help homeowners with subprime mortgages refinance loans or sell their homes. About $10 billion should suffice, he said at the time.
The months went by, the economy worsened, and Obama won the election. On Feb. 18, 2009, President Obama unveiled his plan. Price tag: $75 billion.
By providing incentives to both lenders and borrowers, the plan allows some homeowners to refinance loans. It excludes investors, speculators, people who fraudulently obtained loans, and people who purchased homes so beyond their means that even refinancing won't help them.
"The plan I'm announcing focuses on rescuing families who have played by the rules and acted responsibly," Obama said. "It will give millions of families resigned to financial ruin a chance to rebuild. It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone."
The plan may end up more expensive than $75 billion because it also provides a guarantee of up to $200 billion in capital for federal mortgage holders Fannie Mae and Freddie Mac. That guarantee may or may not be necessary, said Treasury Secretary Timothy Geithner.
A few parts of Obama's overall plan require approval from Congress, but most of the money comes from the Troubled Assets Relief Program, or TARP, that Congress approved in 2008, Geithner said.
By putting $75 billion toward the program, Obama exceeded the terms of his campaign promise. Promise Kept.
The White House Web site, President Obama's Housing Plan , Feb. 18, 2009
The White House Web site, Press Briefing with Treasury Secretary Geithner, HUD Secretary Donovan, and FDIC Chairman Bair , Feb. 18, 2009
The Boston Globe, President steers $275b to housing , Feb. 19, 2009
The Boston Globe, Questions, answers about the program , Feb. 19, 2009
Bloomberg.com, Obama housing plan questions and answers , Feb. 18, 2009