“American taxpayers and their representatives in Congress have an absolute right to know what the Government’s specific expectations and goals are for using the $50 billion that will be added to the national debt as a result of this program. Instead, Treasury only offers a goal—regarding offers of assistance—that is completely disconnected from the actual expenditure of taxpayer money.” —Neil Barofsky, Special IG for TARP
The July 2010 quarterly report from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) provides little comfort that Democrats are having any success mitigating the economic downturn vis-à-vis the housing sector. To the contrary, Democrat policy attempts are falling far short of the intended goal of providing mortgage relief to Americans facing foreclosure. The SIGTARP report was particularly critical of the Home Affordable Modification Program (HAMP), a Democrat program that aims to reduce individuals’ monthly mortgage payments to 31 percent of gross income with direct payments to loan servicers for payment reduction or loan restructuring. The program, part of the Treasury Department’s $75 billion package for mortgage assistance, was singled out for slow uptake and Treasury’s failure to set and monitor metrics for the program’s success. In fact, foreclosure filings have increased dramatically over the 17 months that HAMP has been in place.
Issues of Concern:
Weaving a Wasteful Web: President Obama’s “Making Home Affordable” (MHA) initiative is a collection of nearly a dozen separate incentive and subsidy programs, all with entangled objectives of relieving the economic dislocations in the housing market. The Obama Administration has allocated $50 billion of TARP funding with an additional $25 billion coming from the bankrupt Fannie Mae and Freddie Mac. As of June 30, 2010, MHA has committed to payments of $55.9 billion for mortgage modifications, with a total of 753,000 modifications in place under the HAMP program. This number represents only a small fraction of President Obama’s explicit goal of helping 3 to 4 million American homeowners avoid foreclosure through the program. At this rate, it will take about seven more years and hundreds of billions of additional dollars to meet that mark.
Mortgage Market Meddling: As Mark McWatters, a member of the Congressional Oversight Panel charged with overseeing Treasury’s actions related to TARP, stated, “HAMP itself may have exacerbated the mortgage loan delinquency and foreclosure problems by encouraging homeowners to refrain from remitting their monthly mortgage installment based upon the expectation that they would ultimately receive a favorable restructure or principal reduction subsidized by taxpayers.” Additionally, the SIGTARP report referenced a program in which Bank of America was willing to reduce the principal on certain mortgages, funded without government support. However, upon hearing of the HAMP principal reduction program, the bank announced that it was “shifting its existing program into HAMP so that it could benefit from taxpayer subsidies.”
Sky-high Spending: President Obama’s penchant for a government solution increases moral hazard and has proven insufficient to the scope of the mortgage foreclosure problem. On July 21, 2010, Reuters reported , “Increased housing commitments swelled U.S. taxpayers’ total support for the financial system by $700 billion in the past year to around $3.7 trillion, [SIGTARP] a government watchdog said.” Democrats, in their rush to tax, spend, and regulate, fail to understand the private sector forces that will remedy the situation; it is not in any bank’s interest to hold and manage a foreclosed property nor is it preferable for homeowners to walk away from an underwater mortgage and suffer the consequences of personal bankruptcy.