U.S. Foreclosure Relief Program May Fall Short

Washington, DC, Oct. 9, 2009--The administration's program to help homeowners avoid foreclosure may fall short of its goal of helping 3 million to 4 million borrowers and may simply delay mortgage defaults for many, according to the Congressional Oversight Panel.

The panel, charged with making regular assessments of the $700 billion financial rescue fund enacted last year, said the Treasury Department should consider whether to improve the current $50 billion program or adopt new programs to meet an expected rise in foreclosures fed by increased unemployment.

It comes a day after the Treasury said its mortgage relief effort has helped 500,000 homeowners and that it was still on track to help up to 4 million homeowners within three years.

"We've put significant pressure on servicers to ramp up their efforts," said Housing Secretary Shaun Donovan. "We're holding them to higher performance standards."

But the oversight panel, chaired by Harvard law professor Elizabeth Warren, concluded that the foreclosure crisis has now moved beyond the subprime mortgage market that ensnared many homeowners, particularly low-income families. The program, the report states, was not designed to deal with foreclosures caused by unemployment.

"Serious concerns remain about the program's scope, scale and permanence," Warren told reporters in a conference call. "In particular it isn't clear that 500,000 modifications will be enough to put a serious dent in the foreclosure crisis or to dampen the impact of foreclosure on the broader economy."

Foreclosures, the report said, are now stalking families who took out conventional, fixed-rate mortgages and put down payments of 10 to 20 percent on homes that would have been within their means in a normal market.

Treasury's program, known as the Home Affordable Modification Program, "is targeted at the housing crisis as it existed six months ago, rather than as it exists right now," the report says.

Treasury spokeswoman Meg Reilly said Thursday that while the mortgage relief program is available to the jobless, "we continue to study further ways to help unemployed homeowners."

The report said that rather than abandon the program, Treasury should improve it. Rising foreclosures, the report asserted, could have devastating effects not only on families, but also on local communities and the economy in general. The benefits of avoiding foreclosure would likely outweigh the cost to taxpayers, the report said.

The report's underlying theme was that foreclosures were bound to take a turn for the worse and that Treasury did not appear prepared to confront a rise in defaults.