- A vacant home is surrounded by a chain link fence carrying a “bank owned” sign and ads from local tradespeople Tuesday in Los Angeles. The dismal results of the Obama administration’s mortgage aid program are raising doubts about whether the government can fix the housing crisis. (AP Photo by Reed Saxon)
By Alan Zibel
AP Real Estate Writer
Washington — The new president climbed aboard Air Force One a year ago for a trip to Phoenix to reveal his strategy for attacking the housing crisis. It was a signal moment in the buoyant early days of Barack Obama’s administration.
The plan, Obama told a cheering audience of high school students, would keep as many as 9 million people in their homes by lowering their monthly mortgage payments. The program wouldn’t save every home, Obama cautioned, but few people paid attention. Not with Treasury Secretary Timothy Geithner saying things like, “You’ll start to see the effects quite quickly.”
Ambition, though, got far ahead of reality.
The numbers show a program that failed to deliver. About 116,000 homeowners have had their loans modified to reduce their monthly payments, according to the Treasury Department. Only about $15 million in incentive money has been paid to more than 100 participating mortgage companies. That’s 0.02 percent of the $75 billion available.
“We were attempting to set realistic expectations, but I think we failed to do so,” Michael Barr, an assistant Treasury secretary, said in an interview.
Interviews with officials in the Obama and Bush administrations, bank executives and housing experts show the government launched the effort without thinking through many of the details of such a complex program. Banks were ill-prepared, as well. To implement the program, it took months to hire and train thousands of new workers — many of whom had no previous experience in the mortgage industry.
The economy also worsened. Unemployment soared to 10 percent, and home prices continued to fall. Nearly 16 million homeowners nationwide now owe more to the bank than their properties are worth, according to Moody’s Economy.com.
The dismal results of Obama’s mortgage aid program now raise doubts about whether the government can fix the housing crisis. Low interest rates and tax incentives have boosted home sales, but are ending soon. The $1.25 trillion program created by the Federal Reserve that has helped keep rates low is scheduled to end next month. The tax credits run out on April 30.
At the same time, hundreds of thousands of foreclosed homes will hit the market this year, depressing prices even more.
“Realistically, we still have massive problems. When exactly are we going to deal with it?” said Christopher Thornberg, a Los Angeles economist who long warned that the housing bubble would burst.
No one is quite sure. An increasing number of people are opting to walk away from mortgages because they owe more on their mortgages than their homes are currently worth. That could cause home prices, which stabilized last year, to sink again.
Obama’s plan had two main strategies: The government would channel $75 billion to banks to prod them into modifying the terms of mortgages for up to 4 million borrowers by the end of 2012. It would also relax rules to let up to 5 million homeowners refinance at lower interest rates.
Obama officials initially made it seem that the program would be ready for borrowers a few weeks after the president’s announcement. Instead, mortgage companies were barely ready by May.
“The program was announced long before a true program existed,” said Mike Heid, co-president of Wells Fargo’s home mortgage division.
Last month, the Obama administration made key changes. It reduced the paperwork requirements and announced that homeowners will be required to provide proof of their incomes upfront starting June 1.
“President Obama is finding that, well, it actually is pretty hard” to fix the foreclosure mess, said Phillip Swagel, a Treasury official under President George W. Bush. “It’s very easy to say ‘you need to do more.’ But it’s very difficult to find something that is more — and can be done.”