Congress considers changes to mortgage aid program
WASHINGTON — With fewer than 500 applications and only two-dozen homeowners helped so far, lawmakers want to revamp a new program that was intended to help hundreds of thousands of borrowers avoid losing their homes.
The changes expected to be considered Wednesday afternoon by the House Financial Services Committee come as Congress and President Barack Obama refine the most dramatic steps yet to boost the ailing U.S. housing market. Treasury Secretary Timothy Geithner is expected to announce a new approach for aiding borrowers and rescuing the flailing financial industry next week.
The Obama administration wants to spend up to $100 billion in financial bailout money to help borrowers stay in their homes. Republicans, meanwhile, are expected to seek a vote later this week on a plan to have the government drive down mortgage rates to as low as 4 percent.
The government's efforts to stem the foreclosure crisis thus far have relied on voluntary cooperation of the lending industry. The plans have not stopped a dramatic surge in foreclosures that is likely to worsen as workers lose their jobs amid a deepening recession.
"We will have to do more — substantially more — to fix this crisis," Geithner said Wednesday.
During the presidential campaign, Obama said banks that receive federal bailout money should be required to halt foreclosures for 90 days, but that hasn't happened yet.
"I voted for Obama just for that reason," said Leroy Hernandez, 52, who lives outside Richmond, Va., and faces foreclosure later this month. "Maybe I'm just gullible."
The company that collects payments on Hernandez's loan, Litton Loan Servicing, is owned by Goldman Sachs Group Inc., which has received $10 billion in federal bailout money. A spokeswoman for Litton had no immediate comment Wednesday afternoon.
Last year, Congress created the Hope for Homeowners programs, which was supposed to allow 400,000 troubled homeowners swap risky loans for traditional 30-year fixed-rate loans with lower rates. But only 25 loans have been approved since the program started in October out of 451 applications, despite more than 66,000 calls to the Federal Housing Administration about it from consumers and lenders.
Under a bill being considered by the House committee, several restrictions on the program would be lifted in hopes of allowing more people to qualify.
Meg Burns, the federal housing official in charge of the program, testified this week that tight restrictions on who can qualify and high fees have led to the disappointing results. The bill being considered Wednesday would reduce those fees and lift some of those restrictions.
However, some consumer advocates argue the changes aren't enough.
"It's not the magnitude of help that's needed," said John Taylor, president of the National Community Reinvestment Coalition, a consumer group in Washington that's pressing the administration to buy up distressed loans in bulk and modify them so borrowers stay in their homes.
While plans to assist homeowners likely will anger those who oppose subsidizing borrowers who may have acted irresponsibly, the Obama administration appears to agree that such action can help stem the financial crisis.
"We're not going to be able to eliminate all foreclosures, but can certainly keep that number from getting out of control," said Robert Litan, a senior fellow at the Brookings Institution, a liberal-leaning think tank. By doing so, "you should be able to reduce some of the losses on the securities which are driving the banks under."