The Obama administration will spend less than a quarter of the $50 billion it promised to help homeowners facing foreclosure, the nonpartisan Congressional Budget Office said in a report Monday.
The CBO projection raises fresh questions about the success of the administration's foreclosure-prevention efforts and its commitment to helping homeowners, even as unemployment hovers near 10 percent. Corporations and large banks appear to be in full-fledged recovery -- last quarter, corporate profits reached an all-time high of $1.66 trillion on an annual basis -- but households and small businesses seem to have been left out.
Washington policymakers talk constantly about helping "Main Street" recover from the steepest downturn since the Great Depression. Spending less than a quarter of the money promised to help residents of "Main Street" keep their homes may not seem in line with that goal.
President Barack Obama and his top aides, including Treasury Secretary Timothy Geithner, have made numerous pledges to the ever-increasing number of homeowners faced with foreclosure, declines in home value and reductions in equity. The administration's programs, announced by Obama in a Mesa, Ariz. high school just four weeks after he took office, originally aimed to "enable as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure."
Using $50 billion from the Troubled Asset Relief Program, the bailout fund also known as TARP, the Obama Treasury Department would pay banks, investors and homeowners for every home loan modification that saved a borrower from foreclosure.
To say the program has made a meaningful impact in ameliorating the housing crisis would be an overstatement.
Through October, about 483,000 distressed homeowners were making reduced monthly payments thanks to the administration's plan -- barely 16 percent of Obama's most conservative estimate. More than 755,000 borrowers have been tossed, due either to failure to keep up with the reduced payments, issues with documentation, such as proof of income, or bank blunders. The Treasury Department, which is overseeing the program, has not punished a single mortgage company for failing to comply with its directives, despite anecdotal evidence that homeowners are routinely misled or taken advantage of by their mortgage servicers. Treasury has spent just $710 million of that $50 billion through the end of last month.
Meanwhile, home prices, which had stabilized, have begun to fall. The Federal Housing Finance Agency, a government watchdog, said last week that house prices have declined 3.2 percent nationwide during the past year. Moody's Investors Service forecasts home prices to fall an additional 5 percent from their current values. FHFA predicts that home values won't reach their June 2010 level until December 2013.
The Federal Reserve expects 6.5 million home foreclosure filings this year through 2012, Fed Governor Elizabeth Duke said Nov. 18 in testimony to the House Financial Services Committee. Nearly one-quarter of homeowners with a mortgage owe more on that debt than their home is worth, putting them "underwater," according to CoreLogic, a Santa Ana, Calif.-based data provider.
The White House's programs, while not meant to solve all of the nation's housing woes, were supposed to make things better. Strapped homeowners would get a fresh shot at keeping their homes, the theory went, while banks and investors would face less losses from a reworked mortgage than a failed one. In turn, foreclosures would wane, putting fewer distressed homes on the market. Home prices would eventually rebound.
That's not happening.
Instead, "the expected participation in the Treasury's mortgage programs declined," CBO wrote in its report. In March, when the budget office predicted that the administration would spend just $22 billion of the $50 billion it had allocated, or $10 billion more than it's now predicting, it wrote that the difference stemmed "primarily from disparate outlooks on the number of eligible households and the participation rate among those households."
On Monday, CBO noted that it further "reduced its estimate of how many homeowners will receive aid under the Treasury's mortgage initiatives.
"Accordingly, CBO reduced the total expected expenditure of such programs from $22 billion to $12 billion," it wrote.
The White House's Office of Management and Budget estimates that Treasury will spend $46 billion of TARP funds on its anti-foreclosure efforts.
Last month, former Sen. Ted Kaufman, the head of the Congressional Oversight Panel -- another bailout watchdog -- said of Obama's initial promise that "[a]t the time, our economy was on track to experience more than eight million foreclosures, so the goal was always modest compared to the scale of the problem.
"Certainly it was modest compared to the boldness shown in rescuing AIG, Fannie Mae, Freddie Mac, Bank of America, Citigroup, and the auto companies," added Kaufman, a Delaware Democrat. "Yet now, two years later, we can see that even this modest goal will not be met."
In its most recent quarterly report to Congress, the Office of the Special Inspector General for the Troubled Asset Relief Program wrote that "the most specific of TARP's Main Street goals, 'preserving homeownership,' has so far fallen woefully short." SIGTARP's chief, Neil M. Barofsky, has been especially critical of the administration's approach to helping homeowners.
The bright spot in the budget office's report was its forecast that TARP would cost the federal government just $25 billion.
"Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low," the CBO report's authors wrote.
"While we are pleased that CBO recognizes that the overall costs of TARP are likely to be less than 5 percent of the original $700B authorized, we are working to ensure that our efforts to prevent foreclosures is as robust as possible," Treasury spokesman Mark Paustenbach wrote in an e-mailed statement.
The law authorizing the bailout gave the White House $700 billion to stabilize the financial system in a manner that "protects home values," "preserves homeownership," and "promotes jobs and economic growth," among other responsibilities.
Some may argue that the stabilization of Wall Street will be its sole accomplishment.
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