TARP HOUSING PROGRAM

The Hill reports that TARP watchdog blasts Obama housing program.

Neil Barofsky, the special inspector general over the $700 billion financial rescue package, slammed the administration's housing program for having ill-defined metrics and for helping far fewer homeowners than originally proposed.

The administration's program has produced 170,000 permanent home loan modifications. The program may even do more harm than good.

Full report here PDF

a Forty percent of mortages that are given mortgage modifications under the program are expected to re-default. One reason is the program's goal is to reduce mortgage payments to 31% of the borrower's gross income. But, the only debt considered is mortgage debt, not car payments, credit card payments, student loans or second liens on the house. The program doesn't require banks to consider negative equity either which is a factor in 50% of foreclosures. p 37

a It might, in fact, "make more economic sense for people to walk away from their mortgages, and rent at a lower cost, rather than continue to make payments that may never result in them obtaining equity in their homes." p 38

a The audit concludes that the program risks helping few at significant taxpayer expense, benefits the lenders/investors who avoid recognizing losses that will come with eventual foreclosure. And the program has done little to "help keep families in their homes."

MY POINT: It's hard not to come to the conclusion that the program was never designed to "keep families in their homes" but letting lenders and investors delay having to deal with subprime, underwater mortgages. These were mortgages extended to people with no credit history, no down payments, and no ability to repay the loans on houses that were vastly overpriced, the value of which was based upon hyper-inflated and possibly criminal appraisals. And then guaranteed by Freddie Mac or Fannie Mae -- i.e. U.S. taxpayers.

There is some hope that some banks recognize the problem. Bank of America is reducing the principal on for some of the "most heinous troubled loans (read subprime and pay option ARMs) to about 45,000 borrowers. The maximum decrease in principal will be 30% Some 25% percent of borrowers nationally are underwater on their loans while in Nevada that hits 70 percent, Arizona, 51 percent, Florida, 48 percent.

Be sure to see the slideshow The Best of US Cities to Buy a Foreclosed Home. In Phoenix, Foreclosures as a % of resales: 58% In Los Angeles, Foreclosure as a % of resales: 39%, In Riverside, CA, Foreclosure as a % of resales: 66%