By Stephen Clark
Published March 11, 2011
President Obama’s four major initiatives to provide relief to hard-hit homeowners — including his signature foreclosure prevention effort, the Home Affordable Modification Program (HAMP) — are on the firing line as Republicans in Congress seek to seize the unused funds from the programs to help reduce the debt.
The Republican-controlled House voted Thursday to terminate the Federal Housing Administration‘s Refinance Program, which is aimed at helping borrowers who owe more than their homes are worth. That program, authorized under the Troubled Asset Relief Program, has only used $50 million of the more than $8 billion allocated for it since it launched in September.
The House is expected to vote Friday on ending the Emergency Homeowners’ Relief Program, which seeks to help unemployed homeowners. That program was created in 1975 but has never received funding until last year’s Wall Street overhaul bill set aside $1 billion for it. It is set to start accepting applications later this year.
Next week, the House is expected to vote on eliminating the $46 billion HAMP and the $7 billion Neighborhood Stabilization Program, which provides money to local governments and groups to fix up homes and communities devastated by foreclosure.
Despite the sudden burst of activity on the House floor, the bills are likely to die in the Senate where Democrats still retain power. And the White House has threatened to veto the bills if they arrive on the president’s desk.
But taken together, the programs have given ammunition to both liberals and conservatives critical of the administration’s housing policy amid a foreclosure crisis in which banks repossessed a record of more than 1 million homes in 2010 with even more expected this year.
The Obama Treasury Department strongly opposes the GOP effort to end HAMP, the cornerstone of the president’s housing rescue efforts.
“Terminating this program would prevent us from helping tens of thousands of additional families each month, relax the pressure on mortgage companies to offer better assistance to struggling homeowners, and damage the prospects of recovery in our still-fragile housing market,” Acting Assistant Secretary for Financial Stability Tim Massad said in a statement.
Massad argued that HAMP has been designed to protect taxpayer interest.
“It does not apply to loans for vacant properties or second homes, and loans are modified only where it makes economic sense to do so,” he said. “Taxpayer funds are only spent if homeowners make their payments. Keeping families in their homes on these terms is good for families, neighborhoods and our economy as a whole.”
But a northern Virginia homeowner told FoxNews.com that while she supports keeping the program alive, she wouldn’t wish the application process “on my worst enemy.”
The homeowner, who did not want to reveal her identify for fear of jeopardizing her application status, said that she almost lost her house while waiting for her application to be reviewed. HAMP requires applicants to default on their mortgage loan to be eligible to enter the program.
But unbeknownst to her, Virginia is one of a handful of states that allows banks to repossess a house one month after the homeowner has defaulted.
The homeowner recently found out her house had been put up for sale three weeks before the auction. She was able to halt the auction after hiring an attorney.
“I am forever grateful that I had this opportunity to save my house,” she said. “But I nearly had a nervous breakdown in the process of trying to save it.”
While the Virginia homeowner got a reprieve from the program, it’s a rare occurrence.
Created in the spring of 2009 with high expectations, the HAMP program has fallen way short of its goals. Only $12 billion has been spent so far, with most of the funds going to services and homeowners, the Congressional Budget Office says.
The program was expected to permanently lower mortgage payments for 3 to 4 million homeowners. Yet, only slightly more than 500,000 borrowers have received permanent loan modifications under the program.
More than 800,000 of the 1.5 million borrowers who started in the program have quit. Meanwhile, the private sector has modified 9.8 million mortgages since 2007, according to the Financial Services Roundtable.
Special Inspector General for TARP Neil Barofsky savaged HAMP in congressional testimony this month, saying the program’s “failed trial modifications often leave borrowers with more principal outstanding on their loans, less home equity, depleted savings, and worse credit scores.”
There is “near universal agreement that the program has failed to meet its goals,” Barofsky said, adding “there is little reason to hope things will get better.”
Republicans have seized on Barofksy’s testimony in their crusade to kill the program.
“Congress should move swiftly to end the president’s disastrous mortgage program,” said Sen. Jim DeMint, R-S.C., who along with Sens. Bob Corker of Tennessee and Tom Coburn of Oklahoma introduced legislation Wednesday to end HAMP.
“It has funneled millions of taxpayer dollars to big banks and Fannie Mae while taking struggling homeowners on a wild goose chase as foreclosures increases,” DeMint said.
But Democrats would rather see the program fixed than terminated.
“I feel as if Republicans are operating in a parallel universe, completely removed from a housing crisis that brought the economy to its knees, left communities decimated, and eviscerated untold amounts of American wealth,” Rep. Maxine Waters of California said in a statement after the vote to end HAMP and NSP, calling the result “a slap in the face to struggling homeowners and recovering communities throughout the this country.”
“Today, the Republicans continued their agenda to eliminate jobs at any cost and leave homeowners to fend for themselves against powerful banks,” she said. “It’s clear that they want to repeal these programs and not replace them with anything meaningful.”