Consumer Law

Obama Administration Knew Foreclosure Programs Weren't Working And Did Nothing

By M. Stan Herring

The Huffington Post has posted an article that that discusses how the Obama administration has chosen to ignore some of the problems resulting from the many foreclosure programs that were instigated last year.

The administration has chosen to ignore the rising numbers of foreclosures and mortgage delinquencies and has not interfered with making mortgage companies reduce the amount owed by mortgage owners. Instead, the administration has left the companies alone and hoped they'd take care of it themselves.

...the administration "specifically had designed the program to allow principal reductions without taking a position of where principal reductions would be most advantageous," he said.

So for the past year, the administration had a policy of "rather than us endorsing a uniform approach to principal reductions, let's give flexibility to servicers and hope that they do it on their own in the right circumstances," Wheeler said.

Currently, about 11 million people, roughly a fourth of mortgage holders, are facing foreclosure or owe more on a mortgage than their home is worth...and the numbers are expected to rise. Negative equity is a huge problem and a driving force of defaults and also makes obtaining a mortgage modification very difficult.

Less than 10 percent of permanent modifications under the administration's Home Affordable Modification Program have involved principal reductions. Simply reducing interest rates for five years, which the Obama administration's program does for homeowners who transition out of three-month trial periods, is "a purely temporary modification [that] ultimately doesn't solve the problem," said Micah Green, a partner at Patton Boggs LLP, a Washington law firm that represents a mortgage-investor group of asset managers who hold more than $100 billion in residential mortgage-backed securities.

Meg Reilly, a Treasury spokeswoman, responded to this information by saying that 850,000 homeowners are now paying reduced mortgage payments, three million have refinanced and $6 billion has been provided to restore vacant or foreclosed properties (called the Neighborhood Stabilization Program Grants through the Recovery Act).

If you would like more information on foreclosures, please check out our articles The Three Stages Of Foreclosure In Alabama and Wrongful Foreclosures In Alabama.

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Full post as published by Alabama Consumer Blog on February 20, 2010 (boomark / email).