With two straight days of bad news from the housing market, the timing couldn’t be any worse for Barack Obama to get Neil Barofsky’s report on TARP and foreclosures. The Inspector General leveled harsh criticism at the White House and Treasury over their attempts to stem foreclosures, arguing that the new policies on loan modifications has done little but put off the inevitable:
The Obama administration’s $75 billion program to help homeowners risks failure by, “merely spreading out the foreclosure crisis,” a top government watchdog said Tuesday.
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 program risks helping few, and for the rest, merely spreading out the foreclosure crisis,” Barofsky said in a report. The program encourages companies to modify the terms of home loans so that borrowers can attempt to avoid foreclosure. Mounting foreclosures continue to weigh heavily on a weak housing market, which began declining more than three years ago.
Obama bragged that the program would help between three and four million distressed homeowners. So far, though, it has only resulted in 170,000 permanent home-loan modifications, far below the rate necessary to stabilize the lending market. Nor does Treasury actually rely on that metric, preferring to track temporary modifications instead, which explicitly postpone the day of reckoning for homeowners that can’t afford their mortgages.
In response, Treasury claimed that Barofsky uses the wrong metric, too:
Herbert Allison, assistant Treasury secretary, defended the program in a letter, and said the program’s success, “should be measured by how many eligible homeowners are able to avoid the pain and stigma of foreclosure by reducing their mortgage payments to affordable levels while either remaining in their homes or transitioning with dignity to more suitable housing.”
“Transitioning with dignity to more suitable housing”? That’s an interesting goal, one not exactly proclaimed by the Obama administration when it demanded the $75 billion in taxpayer money to conduct the program. Homeowners can transition to more suitable housing without a $75 billion government program by taking responsibility for their own decisions in purchasing their houses, especially if they bought “unsuitable” housing in order to put themselves in this position.
That’s also true about loan modifications. If a mortgage can be rescued through loan modification, lenders already have an incentive to reach new agreement with borrowers to modify the mortgages. If not, no amount of government intervention will help, save buying up the paper and forgiving part or all of the loan. Of course, that’s originally what TARP intended to do — buy up bad mortgage-backed securities (MBS) off of the market and provide a cushioned landing for the market, as well as stabilizing some of the derivative markets. That would have given the government more latitude in dealing with modifications. Instead, the Bush and Obama administrations used TARP as a blank check to bail everyone else out.
Clearly, Obama’s economic policies are not working. Barofsky merely confirms what the past several months of housing sales already made obvious.