Congress and the Obama administration are expanding taxpayer subsidies to mortgage lenders and servicing firms for writing off loans to potentially delinquent borrowers.
Under the “HOPE for Homeowners” program created last year, the federal government guarantees loans if lenders rework mortgages to make them more favorable to borrowers. In May, Obama signed an amendment to the HOPE for Homeowners legislation that raises cash payments to lenders and loosens standards.
Hans Bader, senior attorney and counsel for special projects at the Competitive Enterprise Institute, noted, “It’s not just lenders who are getting federal payments for writing off loans, but also companies that service loans without owning them. The servicers now have a financial incentive to write off other institutions’ loans to potential deadbeats, at the expense of whoever actually owns the loan—which probably includes some of the companies your 401(k) mutual funds invested in. Essentially, it’s a bounty on your 401(k).”
$250 Billion to Mortgages
Bader added, “The Obama administration has now devoted at least $250 billion to mortgage bailouts, including high-income borrowers whose mortgage payments are not excessive but who face financial difficulties because of other debts they incurred through excessive consumption.”
Despite the huge financial commitments, the HOPE for Homeowners program has been a flop by any measure.
The original bill took effect last October, during the Bush administration. Bush and congressional proponents said it would help as many as 400,000 delinquent borrowers avoid going into foreclosure.
Virtually no one has benefited from the program, however. There have been only a few hundred applicants, and only one homeowner has been saved from foreclosure because of the program.
‘One of the Most Failed Programs’
Rep. Michael Castle (R-DE), who sits on the House Financial Services Committee, told CNN Money HOPE “is one of the most failed programs we’ve had in a long time.”
The program sweeteners Obama signed in May aim to change that. The original bill tried to persuade banks to reduce mortgage balances to 90 percent of a home’s current market value. The reduced loan would then be insured by the Federal Housing Administration.
The new version of HOPE requires mortgage lenders and servicers to reduce balances only to 93 percent of market value, pays them $1,000 for every HOPE-refinanced loan, and gives them a chance to recoup more money by sharing in future home price appreciation.
Mortgage foreclosures hit a record high in April, with 342,000 homes in default, being auctioned, or in bank repossession, up 32 percent from a year earlier.
Nevada had the nation’s highest foreclosure rate, with one filing for every 68 households. Florida and California, with foreclosure rates of one for every 135 and 138 households, respectively, ranked second and third.
Arizona, Illinois, Ohio, Michigan, Georgia, Texas, and Virginia rounded out the top 10 states with the highest mortgage foreclosure rates.
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.