Modifications,Short Sales,Deeds in Lieu,WriteDowns

Federal Foreclosure Programs to Cost Less than Expected

Posted on Friday, March 18, 2011

Members of the House Financial Services Committee are advocating for the termination of federal foreclosure relief programs largely based on the argument that their cost outweighs the benefits.
The committee sent two bills to the full House last week that would end the Federal Housing Administration’s Short Refi Program for underwater borrowers and the Emergency Mortgage Relief Fund which provides temporary assistance to the unemployed.
Committee members are scheduled to vote on bills ending the Home Affordable Modification Program (HAMP) and HUD’s Neighborhood Stabilization Program (NSP) on Wednesday.
While committee leaders claim the programs are “a waste of taxpayer money” and funding should be rescinded, information provided by Katie Jones, a housing policy analyst of the Congressional Research Service at the Library of Congress, indicates that the price tag for the government’s foreclosure mitigation programs will come in well below earlier estimates.
As Jones explained, Treasury initially earmarked $75 billion for HAMP modifications. Of that amount, $50 billion was to come from Troubled Asset Relief Program (TARP) funds to make incentive payments to mortgage servicers, borrowers, and investors, with the additional $25 billion to be provided by Fannie Mae and Freddie Mac for the costs of modifying mortgages they own or guarantee.
The $50 billion in TARP funds has since been reduced to a total of $45.62 billion for HAMP and other housing programs that the administration has since initiated.
Treasury has reduced the amount of TARP funds that it has designated specifically for HAMP and its related programs to $29.91 billion, with the remainder of the funds designated for the FHA Short Refinance program ($8.12 billion) and the Hardest Hit Fund ($7.6 billion).
But even with these projected reductions, Treasury’s calculations are likely too high. Jones cites a November report from the Congressional Budget Office which estimates that only $12 billion in TARP funds will ultimately be spent on these programs.
As of February 25, 2011, Jones says $1.04 billion of the HAMP funding has been disbursed – a deduction that otherwise supports critics’ claims that the program is “ineffective” and its results are “anemic” considering nearly two years in, and only 2 percent of the funding allocated has been distributed.
However, Jones notes that certain HAMP incentive payments are designed to be paid based on the future success of servicer actions.
She explained, “Under the HAMP incentive structure, mortgage servicers receive an upfront incentive payment when a modification becomes permanent, and mortgage investors also receive a payment cost share incentive for successful permanent modifications. In addition, mortgage servicers can receive ‘pay-for-success’ incentive payments of $1,000 per year for up to three years, and borrowers can receive pay-for-success incentive payments of $1,000 per year for up to five years in the form of principal reduction.”
The second initiative facing a committee vote this week, HUD’s Neighborhood Stabilization Program, received three rounds of funding through three different legislative acts passed by Congress.
Of the $3.9 billion awarded in the first round, Jones says 99.7 percent of the funds have been obligated by grantees and 55 percent has been disbursed. All of the $2 billion second round has been spoken for by grantees and 9 percent has been distributed by HUD. The final $1 billion made available under the Dodd-Frank Act has not yet been obligated for specific projects.
The bill before the House Financial Services Committee would rescind the unobligated third round of funding, but HUD officials say the program has been effectively implemented and a retraction of the final $1 billion would stall the agency’s progress in bringing stability to hard-hit neighborhoods with high volumes of vacant and foreclosed homes.
Jones says according to data available to date, round-one grantees are using funds principally for two types of activities: acquisition and rehabilitation of distressed properties. As of January 13, HUD reported that they have completed 19,189 units, which may include rehabbing, demolition, and new housing construction.
By: Carrie Bay, DS NEWS


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