“It now seems clear that Treasury’s programs, even when they are fully operational, will not reach the overwhelming majority of homeowners in trouble.”
—Congressional Oversight Panel report, April 14, 2010
Nearly one year ago, the Obama administration announced the creation of the FHA Refinance Program to refinance underwater loans into the FHA. The program is funded with $8 billion in TARP funds, with only $50 million of this amount disbursed as of February 3. The Administration originally estimated this program would help between 500,000 and 1.5 million homeowners. However, according to FHA Commissioner David Stevens, only 44 loans have been refinanced as of mid-February 2011 and only 245 applicants have been submitted (equating to $1,136,363 per refinancing).
The program falls under the Obama administration’s “Making Home Affordable” initiative, an umbrella term that encompasses the myriad efforts of the Administration to mitigate the housing crisis. However, Democrat policy attempts are falling far short of the intended goal of providing mortgage relief to Americans facing foreclosure. In fact, they are actually prolonging a recovery by inhibiting job growth through the uncertainty of future tax increases driven by excessive government spending.
Issues of Concern
This is improvement?!: Foreclosure filings have increased dramatically over the two years that Making Home Affordable initiative has been in place. According to foreclosure data from RealtyTrac, a record 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009, and 2.3 million in 2008, with the prediction that filings will increase 20% in 2011. The firm’s data also indicate that bank repossessions continue to increase, from just less than 820,000 in 2008 to over 918,000 in 2009 to 1.05 million in 2010. One struggles to imagine how the housing market—or struggling homeowners—could be worse off absent government meddling in the sector.
Still failing its own mandate: The TARP legislation specifically authorized the Treasury Secretary to use funds in such a manner that “protects home values, college funds, retirement accounts, and life savings; preserves homeownership and promotes jobs and economic growth; [and] maximizes overall returns to the taxpayers of the United States.” In the 4th Quarter of 2010, home prices in 11 major metropolitan areas reached new lows since their peak, and millions of homeowners are struggling to stay afloat. Since enactment of TARP, the uncertainty created by the federal government’s capricious involvement in the economy has caused the unemployment rate to hover around or above 9 percent for 22 consecutive months while GDP growth was revised downward to 2.8 percent for the 4th Quarter of 2010.
More risk for the taxpayers: As the Committee on Financial Services points out, the FHA Refinance Program enables lenders to transfer their mortgage risk onto the taxpayer. By expanding the FHA guarantee, this program privatizes profits and socializes losses, amounting to a bailout of lenders who shift the risk of underwater borrowers onto taxpayers.
The lack of jobs—not unsustainable mortgage terms—is now the driving force behind foreclosures and mortgage defaults. That is why job creation—not government spending—is the most effective tool to prevent further foreclosures. Consistent with House Republicans’ pledge to end the reckless, job-destroying spending of Democrats, Rep. Robert Dold (R-IL) has introduced legislation, H.R. 830, to end the FHA Refinance Program, saving taxpayers’ money and reducing the federal government’s involvement in the housing market.