In discussing the potential options for immediate implementation of Jeff Merkley’s HOLC-type plan for current, underwater homeowners, Mike Konczal reveals a pretty amazing stat that says a lot about the relative seriousness with which the Treasury Department and other federal agencies have attacked the foreclosure crisis thus far:
The report notes three potential homes for the plan: (1) FHA, (2) Federal Home Loan Banks system, or (3) the Federal Reserve. Of those, FHA seems like a potential place to launch the plan immediately. As the report mentions, “FHA already implements the FHA Short Refi program as one of the government’s foreclosure prevention programs.” What if the administration took the FHA Short Refi program and replaced it with what is needed to run the RAH? To launch this right away by replacing FHA Short Refi with the Merkley plan you’d need authority and cash, and FHA Short Refi has both.
Why does FHA Short Refi have the authority to implement this plan? FHA Short Refi plan is a part of TARP designed to deal with the housing crisis by modifying underwater mortgages. When Dodd-Frank passed in July 2010, special language was put in to limit the creation of new programs or initiatives under TARP. However, this project exists as part of that already-existing housing priority, and those programs can be modified. These programs are modified all the time to try to make them work better. HAMP, for instance, was modified earlier this year [...]
FHA Short Refi also has money. According to SIGTARP’s quarterly report to Congress from July 2012, Treasury had allocated $8.1 billion for FHA Short Refinance.
How many mortgages have been modified under the FHA Short Refi program since it started? “As of June 30, 2012, there have been 1,437 refinancings under the program.” Less than 1,500 mortgages in the country have gone through this program. How much money has been spent? “Treasury has pre-funded a reserve account with $50 million to pay future claims and spent $6.6 million on administrative expenses.” Less than $57 million dollars. Given $8.1 billion dollars to spend on helping the housing market, less than 0.7 percent of it has been allocated, impacting less than 1,500 people.
Excuse me, what? The FHA short refi program was launched in September 2010, almost two years ago. And it has helped, to date, less than 1,500 borrowers, and spent 0.7% of its funds?
Part of me looks at these statistics and wonders what the point is of initiating any new programs housed inside these agencies. Even an intelligently designed program meant to help homeowners without being reliant on servicers would run up against having to be implemented by the same people who delivered these disastrous results at FHA and Treasury. I recognize that this is $8 billion in capital and insurance fees that could be used for the first tranche of RAH mortgages, without having to go through Congress for authorization to sell bonds to raise the rest of the capital (Konczal estimates that the $8 billion could insure up to $100 billion in underwater debt, but FHA would still have to find a way to put up the money to buy the mortgages in the first place, and I’m not certain that money could come out of their existing portfolio). But FHA would have to run and manage the program. And their track record is beyond abysmal.
The other option is to use the Federal Reserve, to “inject monetary policy into the heart of the economy,” as Sen. Merkley put it. But even though the Fed is interested in purchasing mortgage-backed securities, they have been reluctant to purchase the mortgages themselves and create this single-purpose vehicle. And again, the Fed isn’t exactly a homeowner-friendly agency. Who would they have service the loans, for instance?
I don’t think there’s incompetence at FHA or Treasury or the Fed, by the way, it’s that they are generally uninterested in these policies that help homeowners as the primary goal, relative to helping banks. Merkley’s plan is sound; now we just have to find a government desirous of implementing it properly.