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Did Modification Programs Work?

The government decided early on that the market would not be able to absorb the number of foreclosures that the financial crisis was creating without crushing house values. This was one reason that they funded the Troubled Asset Relief Program (TARP). This past week, the Congressional Oversight Panel (COP) weighed in with their opinion on TARP’s success.

Today we want to concentrate on the parts of the report that pertain to real estate. TARP funds were to be used:

…in a manner that protects home values, college funds, retirement accounts, and life savings; preserves homeownership and promotes jobs and economic growth; maximizes overall returns to the taxpayers of the United States.

Did TARP Accomplish Its Housing Goals?

One way TARP was to accomplish ‘protecting home values and preserving homeownership’ was through the Home Affordable Modification Program (HAMP). According to the COP report:

…when the President announced the Home Affordable Modification Program in early 2009, he asserted that it would prevent three to four million foreclosures. The program now appears on track to help only 700,000 to 800,000 homeowners.

We want to say that, if hundreds of thousands of families averted the devastation foreclosure can bring, we consider the program as worthwhile. Successful? That’s a different story.

Another program initiated to help was HOPE for Homeowners. It was established by Congress in July 2008 to permit the FHA to insure refinanced distressed mortgages. However, as the report explains:

HOPE for Homeowners was initially expected to help 400,000 homeowners, but it managed to refinance only a handful of loans. This was likely due to the program‘s poor initial design, lack of flexibility, and its reliance on voluntary principal write-downs, which lenders were very reluctant to make.

The Only Good News?

The only silver lining is that TARP didn’t cost the taxpayer as much as was originally estimated. At what expense to troubled homeowners? In discussing the falling cost of the program COP stated:

… a separate reason for the TARP‘s falling cost is that Treasury‘s foreclosure prevention programs, which could have cost $50 billion, have largely failed to get off the ground. Viewed from this perspective, the TARP will cost less than expected in part because it will accomplish far less than envisioned for American homeowners.

Bottom Line

TARP was set up to avoid home values being crushed under the weight of foreclosures. To that regard, it seems to have done nothing but delay the inevitable.


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6 replies
  1. Steve Harney
    Steve Harney says:

    @Bob,

    Thanks for your comment. We got our numbers directly from the Congressional Oversight Panel report issued last week. The numbers are a direct quote from the 233 page report which is linked in the blog post.

    If you read the report, you will see that Hope for Homeowners is a totally different program than Hope Now. We were reporting on the GOVERNMENT modification programs funded by TARP funds (which was clearly explained in the first paragraph of the blog).

    Hope Now is a private program which has done some remarkable work. However, they were not the subject of the blog.

    Reply
  2. Bob Phillips
    Bob Phillips says:

    OK, Steve, thanks for the clarification. I’m hoping – no pun intended – that Congress isn’t as short-sighted as they seem, to think that the two programs you’ve blogged about, are the only game in town, and thus, the whole shebang is a failure.

    Without the pressure of the HAMP program nipping at their heels, the consortium of lenders who revamped into a slightly more palatable – to them – HOPENOW program might never have had the comparatively more substantial success, that they’ve had.

    Again, the combination of all these programs still saved a lot more houses, than those that eventually went to foreclosure. More mods than foreclosures sounds like a success to me.

    Reply
  3. Thomas McGiveron
    Thomas McGiveron says:

    Don’t forget all the short sales that realtors have done to help people avoid foreclosure entirely! I remember hearing that a large portion of homeowners who got loan mods ended up defaulting anyway AND the verdict is still out on those that did get loan mods and are current.

    The way I look at loan mods is – life can change on a dime – and to modify a home that’s upside down in value by over 35% – is very questionable – financially. Does it make sense to do a modification on a loan whereby they do all these fancy things with the borrowed money – meanwhile – some day – you have to repay the whole enchilada?

    I’m not against or for loan mods in general. I just think SOME people should just get the heck out of a majorly declining asset. I am a big advocate of personal responsibility – you borrow money and you pay it back – but savvy bankers/brokers and a ton of investors who made millions of dollars on the upswing – are living high off the hog – even today – and some schmuck in Commack, NY – got a loan mod on a home they paid $500,000 for in 2005 that’s worth $360,000 today…good for them???? Their mos payment went from $3,900 to $3200 and their in the tank on value by more 140 g’s – I don’t about the “success” of that deal…

    verdicts still out on ALL THIS.

    Reply

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