Treasury falls short on housing

The Obama administration is falling short of its goals to stabilize the housing market and halt foreclosures, a congressional watchdog said.

The Congressional Oversight Panel, tasked with overseeing the $700 billion financial bailout, said in a report released on Wednesday that the administration’s programs “will not reach the overwhelming majority of homeowners in trouble.”

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“Treasury’s response continues to lag well behind the pace of the crisis,” the panel said.

The housing bubble burst more than three years ago, and the decline in housing prices and securities based on mortgage loans helped drive the economy into a deep recession.


The Obama administration has unveiled a series of programs over the last year to help stabilize the housing market and keep people in their homes by reducing their mortgage payments.

The programs have had limited results so far, although they are starting to have a bigger impact this year, according to recent Treasury data.

The administration’s Home Affordable Modification Program resulted in 170,000 permanent loan modifications by February.

The pace of modifications has increased this year. Still, the total represents only 13 percent of all mortgage fixes extended to homeowners.

The congressional panel said the administration’s goal for the housing program overall may even be too small.

“In the final reckoning, the goal itself seems small in comparison to the magnitude of the problem,” the report said.

Congressional Democrats and Republicans have strongly criticized the administration, saying Treasury and Obama need to consider additional efforts and act faster.

While sub-prime and risky loans triggered the housing crisis, the recession and high unemployment rates are behind the more recent growth in foreclosures. Millions of homeowners are “underwater,” meaning they owe more on their homes than the homes are worth.

The administration announced a series of new programs in March to encourage lenders to reduce the amount of money homeowners owe and to deal with an issue regarding secondary mortgages that was seen as holding up modifications.

But many of the programs are voluntary and have not yet begun.

“Even if Treasury’s recently announced programs succeed, their impact will not be felt until early 2011 — almost two years after the foreclosure mitigation program was first launched — and more than three years after the first foreclosure mitigation program was undertaken,” the panel said.

Big banks may take a tough hit, particularly with the new program to reduce second liens, or home equity lines of credit.

The House Financial Services Committee held a hearing Tuesday on second liens, which are held primarily by Bank of America, Citigroup, Wells Fargo and JPMorgan Chase Co.

Each bank has more than $100 billion in exposure to those home equity loans, according to a report from Credit Sights.

The second liens are seen as holding up the modifications of mortgages because the banks continue to receive payments from the second loans.

Banks pushed back on that notion on Tuesday. David Lowman, chief executive of home lending at JPMorgan Chase, said the second-lien issue is not the main problem.

“Our data also show that second-lien modifications are not an impediment to first-lien modifications,” he said.

The rate of modifications under the administration’s program is “virtually the same” regardless of whether there is a second lien, Lowman said.

The congressional panel said that the range of new programs from the administration might result in lenders waiting to participate in the program that benefits them most.

“Although Treasury should be commended for trying new approaches, its pattern of providing ever more generous incentives might backfire, as lenders and servicers might opt to delay modifications in hopes of eventually receiving a better deal,” the report said.