The Financial Services Committee of the U.S. House of Representatives has taken aim at mortgage aid programs that have been widely considered ineffective. According to Committee Chairman Spencer Bachus, "We should not waste taxpayer dollars on failed government programs that do not work and actually make things worse for struggling homeowners. These programs may have been well-intentioned, but they’re doing more harm than good."
One program, due to be launched next month, the "Emergency Homeowners Relief Program, is set to provide $1 billion to provide loans to unemployed borrowers to allow them to make mortgage payments for a period of up to 24 months. However, the loans would increase the amount of debt on the homes and would only worsen their position. These bridge loans also have a process that allows these loans to be forgiven over 5 years, making it essentially a grant program.
The other program is the FHA Refinance Program that allows borrowers to short-refinance their existing underwater loans. It is estimated that only 44 borrowers have successfully obtained new loans in this program with $8 billion allocated to it..
The committee has also set it sights on the Home Affordable Modification Program (HAMP), but have delayed a vote on terminating this program. Launched in 2009 the program sought to permanently lower the mortgage payments for 3 to 4 million homeowners. To date, only 500,000 borrowers have received permanent modifications and over 800,000 or the 1.5 millions homeowners who began the program have dropped out.
As the Committee seeks to terminate what Republicans view as expensive and ineffective programs, a 27 page proposal from state attorneys general and several federal agencies has been sent to the nations largest lenders seeking to require them to reduce loan balances of troubled mortgage borrowers. It has been estimated that the proposal, engineered by the Obama Administration, is calling on lenders to commit to this program or face as much as $20 billion in fines.
According to Rep. Bachus, "Continued government intervention and questionable use of taxpayer dollars only prolongs our current economic crisis and ensures that the housing market will continue to struggle. The market needs to find its own footing free of government intervention and manipulation so that we can get on with a full recovery."