No Hope for Hardest Hit Homeowners

A little known housing program ironically named The Hardest Hit Fund was initially established in 2010 in order to assist homeowners in areas hardest hit by the decline in home values and struggling with higher than average unemployment. Accoring to the government website:

In 2010, the Obama Administration launched the Hardest Hit Fund to help homeowners avoid foreclosure in the areas hardest hit by steep home price declines and unemployment. Through the program, participating housing finance agencies (HFAs) in 18 states and the District of Columbia are implementing a variety of different initiatives to help homeowners struggling with their mortgage payments. All participating HFAs are now operating programs widely and offering assistance to homeowners.

The program is administered under TARP by the Treasury Department in conjunction with agencies in the states covered by the fund. The fund initially claimed that it would offer assistance to nearly 500,000 struggling homeowners and was allocated a budget of over $7 billion. However, as of the end of 2011, the Hardest Hit Fund had helped only slightly more than 30,000 individuals and families and spent $217.4 million of its $7.6 billion budget, or 3%. The program is intended to reach homeowners who are unemployed, or living in areas with high unemployment rates or steeply falling home values, but a recent report by a Special Inspector General lambastes the program’s misadventures.

One major flaw in the program noted by an Special Inspector General Christy Romero–separate and apart from administration’s overall disinterest in offering meaningful relief to underwater and struggling homeowners–is that Fannie Mae and Freddie Mac have been slow to cooperate or provide guidance to lenders.

The program was hindered from the start by Treasury’s failure to gain support from the government-controlled mortgage giants Fannie Mae and Freddie Mac, the report says. Many big, private mortgage companies initially refused to participate because they wanted guidance from Fannie and Freddie, it says. The companies, called mortgage servicers, collect people’s monthly payments and foreclose when they fall behind.
“Without large servicers, the (state programs) could not reach a large portion of struggling homeowners,” the report says.

The Treasury Department’s response to the Special Inspector General’s report has been defiance. The department argues that each of the recommendations is unworkable and blames delays at the state level for much of the failure to actually provide assistance. Treasury also notes that the program extends out to 2017 so you know, homeowners will get some help when the department damn well pleases.

Much of the funding that has been spent thus far has also gone to bail-out state unemployment programs and to assist unemployed homeowners. Very little assistance has reached underwater homeowners. Rather, the bulk of the funds have been allocated to the unemployed.

The money was supposed to give state housing officials incentives to come up with new and different ways to address the housing crisis in their states. But most states just used the money for programs that pay the mortgages, insurance and property taxes of the unemployed.

So far, the hardest hit program has kept up with mortgage payments for some 26,100 unemployed homeowners. These programs don’t hit mortgage servicers or banks’ bottom lines, Romero said.

When it comes to relieving housing woes, so far, only 436 homeowners in the program got the principal owed on their mortgage reduced. Another 170 homeowners got their second lien reduced.

A close reading of each of the news accounts shines a light on the continuing and underlying problem of the Obama administration’s homeowner relief programs: a failure to force the banks and Fannie Mae and Freddie Mac to act. A direct consequence of the administration’s failure to take a hard line with the large banks and governmental entities has hindered progress at every turn. The HARP and HAMP programs have suffered from similar ineffectiveness under stifling efforts and inaction from the banking and mortgage sector. President Obama is fond of downplaying struggles to reach perfection in legislation, often reiterating the necessity of compromise in a democracy. In this case however, the programs are administered by his own Treasury Department, and failures are not the result of compromise with Republicans, but a profound unwillingness to force the banks to offer help to homeowners–even in cases where the bank stands to profit–in return for the trillions of tax dollars given to them in the form of direct bailouts and low-interest loans.

It is simply unacceptable for the Treasury Department to push back at the Special Inspector General and offer up disingenuous excuses for inaction. While the department claims that the program sets up long-lasting foreclosure prevention capabilities, that is of little consolation to the thousands who have lost their homes while the administration fetters.