NGO says HAMP repeal puts economic growth at risk

A national community development group warned on Tuesday that dismantling a $29 billion mortgage modification program would put the U.S. economy at the mercy of millions of additional home foreclosures that are expected in the coming few years.

"Can we afford to have another 11 million foreclosures … given the damage we've already seen after 6 million?" John Taylor, president and CEO of the National Community Reinvestment Coalition (NCRC), said in an interview with The Hill. Taylor said he has seen estimates that as many as 3 million home foreclosures may take place in 2011 alone, about double the volume that has crippled the economy since the housing crisis began.

Taylor's warning comes as House Republicans are preparing to approve a bill today that would repeal the Treasury Department's Home Affordable Modification Program (HAMP). Like the NCRC, Democrats have warned against removing this program, which has helped more than half a million at-risk homeowners make more affordable payments.

Because only $1 billion has been spent under the program, Republicans see the potential to stop $28 billion in spending. They also cite estimates that the program is only likely to help a few hundred thousand more homeowners, far short of the 4 million that was promised.

The Republican bill is not expected to be taken up in the Senate or signed by President Obama, but Taylor's group worries that the program will remain under attack and advocates adjusting the program.

"To that end, NCRC reiterates what it has long called on the federal government to do: enact mandatory mortgage principal reduction," Taylor said in a statement this week.

Taylor said the problem with HAMP is that lenders are not required to participate. Under the program, the government encourages banks to write down mortgage balances so monthly payments do not exceed 31 percent of a borrower's monthly gross income.

While the lenders absorb almost all of this hit, Taylor argues that this is less expensive for banks than having a homeowner foreclose and says mandatory participation is the best way to expand the program.

The House today will not consider any amendments that would make the program mandatory; but one amendment, from Rep. Jay Inslee (D-Wash.), would require Treasury to study the program as it has been used so far, and require the implementation of a new program once that study is completed. None of the Democratic amendments is expected to succeed today.