Five More Ways Obama’s Mortgage Modification Program Fails Americans
For an administration that once said that it would pay more attention to Main Street than Wall Street, the failure of the its signature initiative for Main Streeters — the mortgage modification program — should be a wake-up call that it’s far past time to pay attention to the problems facing the everyday Americans whose votes are up for grabs in November. The administration’s low-dollar block grant initiative aimed at the worst-hit states and its meager incentive program to encourage banks to take short sells will hardly mitigate the ongoing disasters in its mortgage modification program — and there’s nothing but bad news today.
1. Sign up for a mod to save your financial future, and you’ll ruin your credit.
Many people whose finances have taken a hit but who continued to pay their mortgages have applied for mortgage modifications in order to stay afloat. Everyone who enrolls in the program is subject to a three-month trial period, and most people have yet to qualify for a permanent modification — and, if the statistics to date are any guide, never will. What they will get is a 100-point hit to their credit score, which the administration thinks is just dandy because it’s not as much as the 150-point loss they’d see if their bank foreclosed on them. Even worse, for those lucky few whose temporary modifications become permanent, they’ll be able to improve their scores; for those who don’t qualify, the credit score reduction will blemish their scores, even if they never missed a payment or don’t go into foreclosure.
2. The government isn’t even going to spend all the money it promised.
Today’s CBO report says that the mortgage modification isn’t even going to be able to spend the promised $50 billion helping homeowners: It will only end up costing $20 billion, or 40 percent. That’s $5 billion less than the government loaned the auto companies and less than 3 percent of what it spent on the Troubled Asset Relief Program. Meanwhile, the banks are all doing great, and the housing market continues to spiral down the drain.
3. The program isn’t staving off very many foreclosures anyway.
Between banks “losing” everyone’s paperwork and failing to turn temporary modifications into permanent ones, only 170,000 people got permanent modifications since the program started. Meanwhile, 2.8 millions homes went into foreclosure in 2009 — a new record — which means that for every 100 homeowners foreclosed upon, the mortgage modification program saved six.
4. Modifications aren’t saving consumers very much money.
Some people have begun to point out that homeowners who receive temporary, and sometimes permanent, modifications often slide into default anyway. One reason: No one told the banks they had to modify people’s mortgages by very much. Stories are surfacing in which people saw their mortgage bills decline by too little to make any difference. One woman went through the whole process to get a reduction of only $20 a month — and she’s one of the 170,000 supposed successes.
5. California homeowners will have to pay taxes on their losses.
California is one of the states hit hardest by the housing crisis — it had the fourth highest foreclosure rate in the nation in February. But unlike federal tax laws, which temporarily don’t require that homeowners pay capital gains taxes when they sell short or when their foreclosure sales don’t cover the outstanding debt, California has no such provisions in place — and Gov. Arnold Schwarzenegger is threatening to veto legislation that would provide tax relief to people who lost their homes. His reason? Business groups are complaining about tax fraud penalties in a separate part of the bill.