Foreclosures Cannot be Avoided Unless Loans are Reduced

The watchdog opines that foreclosure cannot be avoided unless loans are reduced and for this White House should enforce pressure on the lenders and not leave it to voluntary cooperation. The watchdog is monitoring the bailout of the banks involving $7000 billion.

Towards the end of last March the Federal Government said that the HAMP plan would be expanded to give further incentives to the lenders who wrote down the principal on the loans for underwater borrowers whose property value had fallen to less the amount than the loan due.

Neil Barofsky the Special Inspector General for TARP or SIGTARP said, “Treasury should consider changes to better maximize its effectiveness.” He opined that the voluntary nature of the plan was unjust on some borrowers while giving relief to others. He explained, “Giving (mortgage) servicers the discretion to implement principal reduction introduces a questionable inconsistency into the HAMP program and stands in stark contrast to the mandatory nature of the other significant mortgage modification triggers.”

The report is also putting pressure on the government to think about stretching the time for those homeowners who were unemployed. As of now they are forgiven from making payment for six months but considering the intensity of the unemployment scenario this is not enough. He wrote in the report, “Although no program will assist all unemployed borrowers, Treasury should strive for a program that will at least assist the typical unemployed borrower.” Currently the average stretch of unemployment continues over 31 weeks – it being the longest since records are being maintained from 1948.

The housing sector continues to be weak and unemployment persists. In combination these two are pulling back economic recovery although the confidence of consumers has been growing. In February 2009 the Obama team introduced the HAMP plan involving $75 billion – it being inclusive of $50 billion from bailout dollars.

After being criticized harshly the government declared last March an important extension of the programme. Till now only a fraction of the allotted funds had been used. It included suggestions about writing down the principal and offering subsidies to the lenders for providing forbearance to the unemployed homeowners for another period of six months.

Barofsky observed that about 2.8 million foreclosures started in 2009 and this number is likely to spike in 2010. There are over 932,000 foreclosure postings with the annual speed of foreclosures being 3.7 million. Barofsky bluntly stated, “Unfortunately HAMP has made very little progress in stemming this onslaught.”

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