U.S. House subcommittee turns attention to terminating foreclosure mitigation services
Leadership in the U.S. House Financial Services Committee will hold a subcommittee hearing this week in advance of four bills aimed at terminating federal programs designed to keep Americans in their homes.
The programs — the Home Affordable Modification Program, HUD’s Neighborhood Stabilization Program, the Emergency Homeowner Relief Fund (passed under the Dodd-Frank Act) and the FHA’s Short Refinancing Program — will be the subject of a March 2 hearing by the Insurance, Housing and community Opportunity Subcommittee. Bill mark-up is expected to take place the following day, March 3.
“In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners,” said U.S. Rep. Spencer Bachus (R-Ala.), who leads House Financial Services.
“These programs may have been well-intentioned, but they are not working and, in reality, are making things worse.”
The call to end the programs, which are considered key Obama administration projects to combat the nation’s foreclosure crisis, was joined by U.S. Rep. Judy Biggert (R-Ill.), who leads the Insurance and Housing Subcommittee.
“We need to break down barriers that have delayed the housing recovery, including expensive and ineffective government programs that have failed to help homeowners. Unfortunately, these programs were set in haste, executed poorly, and have done little to restore stability in the marketplace,” she said.
As The Iowa Independent reported in 2009, the Home Affordable Modification Program hasn’t performed as well as expected. Despite placement of $29 billion into the program that would allow banks to alter loans to make them more affordable, only 116,000 such modified loans had been made permanent as of the end of February last year. Democrats have charged that the problem lies not with the program itself, but the fact that the Obama administration relied on private mortgage servicing companies to provide the modified loans.
The goal of the program was to have reached around four million struggling homeowners by 2012. As of February 2010, nearly one million homeowners had entered into trial modifications, although there is no guarantee that such altered loans will become permanent after the 90-day trial, according to Phyllis Caldwell, who leads the federal program. And, even if the loans reach permanent status, many homeowners ultimately re-default. Currently, about 500,000 loans have been modified under the program, and only $840 million of the $29 billion invested in the program has been spent.
Although Democrats seem poised to fight for the other three programs on the chopping block, statements issued by U.S. Rep. Barney Frank (D-Mass.), who serves as ranking member of House Financial Services, neglected to mention the Home Affordable Modification Program.
Congress appropriated $7 billion for the Neighborhood Stabilization Program, which included $2 billion in stimulus funds. Two round of funding through the program have been provided to states and localities, but the bill being drafted by House Republicans would prevent a third round of roughly $1 billion in funding.
According to information from the Iowa Department of Economic Development, the state received roughly $21.5 million in funding as an adjunct to the Community Development Block Grant Program to provide emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become a source of abandonment or blight. Of that funding, approximately $4 million was earmarked for Des Moines and $1.5 million for Davenport. The cities of Cedar Rapids, Council Bluffs and Sioux City each had about $1.2 million allotted during state formulas, and the cities of Waterloo, Dubuque and West Des Moines were also expect have shares of the money to combat blight. The cities were singled out based on a formula used to calculate “Entitlement Cities,” and the department noted that if any decided not to accept the funding, the monies would instead be moved into a competitive application pot.
Nationally, of the roughly $8 billion that was appropriated for the FHA Refinance Program Termination Act, only about $50 million had been disbursed (about 35 applicants as of December 2010). The bill by House Republicans seeks to terminate the program and rescind all unused funding. It is unclear how much of the disbursed funding, if any, has made it into Iowa.
The Emergency Mortgage Relief Program is a reauthorization of the 1975 Emergency Homeowners’ Relief Act that was made possible by the larger Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law in July 2010. It provided $1 billion for the U.S. Department of Housing and Urban Development to make mortgage relief payments to homeowners facing foreclosure for up to 12 months, and provided a pathway to an additional 12-month extension.
Perhaps not surprisingly, this was the piece of legislation most defended by Frank, who said the program is designed not to help people who were “imprudent or irresponsible,” but those that are unemployed. He called it “the single most effective anti-foreclosure program that has been put forward,” and noted that Alabama, Bachus’ home state, had a similar program in place.
If Republicans want to cut spending, Frank said, “there are better ways … than by attacking these programs.”