TOPICS > Economy

Foreclosures: Who’s Being Helped, Who’s Losing Out?

March 25, 2010 at 12:00 AM EDT
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The Obama administration is tweaking the current foreclosure policy to help people stay in their homes. Judy Woodruff reports on who may be helped.
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JEFFREY BROWN: And we go to the continuing crisis in home foreclosures.

The government’s record on helping those most in need came in for new criticism at a congressional hearing today.

Judy Woodruff has our report.

REP. EDOLPHUS TOWNS, D-N.Y.: The meeting will come to order.

JUDY WOODRUFF: Lawmakers got right to the point this morning, trying to convey the magnitude of the growing foreclosure problem across America.

Democrat Edolphus Towns, the chair of the House Committee on Oversight and Government Reform, held up a box of keys from homes lost over the past year.

REP. EDOLPHUS TOWNS: This is a disgrace. This is just too much to take. The families are being destroyed. Children are have — being moved from place to place, because of the fact the mortgage is not being paid. And, a lot of them, if they could get modifications, they would be able to work it out, and they just need a little support, need a little help.

JUDY WOODRUFF: The committee met to discuss why the government’s efforts to reduce the number of foreclosures has had limited success.

Last year, 2.8 million homes were lost to foreclosure. And experts say that number may rise to four million this year. After taking office last year, the Obama administration launched its own plan to help stave off as many as three to four million foreclosures.

But, so far, just about 170,000 households have been able to obtain what are known as permanent modifications to their loans. A new report by the special inspector general for federal bailout money contends that the administration’s $75 billion program has had disappointing results. So far, only a small fraction of the money has been spent.

And, today, Inspector General Neil Barofsky placed much of the blame on the Treasury Department.

NEIL BAROFSKY, Troubled Asset Relief Program special inspector general: We believe that it is unacceptable that, one year into this program, Treasury has still failed to identify what its goals is for the number of permanent modifications to actually help people stay in their homes.

JUDY WOODRUFF: The Treasury Department has been trying to get banks and other lenders to give their customers a break, by cutting interest rates to as little as 2 percent, or extending loan terms up to 40 years. But banks were not pressed to reduce the size of the borrower’s principal loan, as some consumer advocates wanted.

And, today, Neil Barofsky told the committee that Treasury officials administered the plan in such a way that it led many people to apply for relief who don’t earn enough money to qualify.

NEIL BAROFSKY: We have found it to be essentially counterproductive. It’s led to a huge backlog of trial modifications. Importantly, it has diverted scarce resources that could otherwise be devoted to permanently converting modifications. And, perhaps worst of all, it may have actually harmed the people this program was intended to help, borrowers, who are put into hopeless modifications, with no chance to succeed.

JUDY WOODRUFF: The government’s acting comptroller general, Gene Dodaro, told the committee that Treasury’s efforts may improve if given more time.

But that didn’t pass muster with the committee’s ranking Republican, Darrell Issa of California.

REP. DARRELL ISSA, R-Calif.: If we continue doing what we have been doing that has failed, then only insanity explains why we would continue doing what we know won’t work.

GENE DODARO, acting comptroller general, Government Accountability Office: Well, I — I think, in terms of making sure that the program has a fair opportunity, it needed to be set up to have some stability, to be managed properly. And I still think that, if Treasury proceeds — but there will have to be better decisions made.

JUDY WOODRUFF: In response, Assistant Treasury Secretary Herb Allison explained why the pace wasn’t faster, saying it is a large and complex effort, requiring the cooperation of banks. But Democrats are frustrated as well.

Elijah Cummings is from the Baltimore area.

REP. ELIJAH CUMMINGS, D-Md.: The problem is, the pain is still there. The people have been thrown out of their houses.

HERBERT ALLISON, assistant treasury secretary for financial stability: Yes.

REP. ELIJAH CUMMINGS: So, I’m just trying to figure out, why — how do you deal with that?

HERBERT ALLISON: This is a vast program. We’re reaching out to millions of people. There are cases — and, fortunately, the complaints are declining these days. We monitor that very closely. We still get complaints. There still are problems. I fully agree with that.

JUDY WOODRUFF: Treasury’s Allison also announced new protections by the government to make sure lenders do not foreclose on borrowers while they were still in the process of being evaluated for help. And he said the government is encouraged by a new program from Bank of America to reduce the size of some borrowers’ principal, saying it’s in the lender’s best interest.

For the record, Bank of America is an underwriter of the “NewsHour.”

HERBERT ALLISON: There’s nothing that prevents a bank right now from writing down the value of that mortgage that’s on its books, and helping that person stay in their home, because, in most cases, as we’re finding, there’s a higher present value to keeping that person in the home than foreclosing, which is just painful for everybody, not just the homeowner, but the bank.

But they, in some cases, have been slow to do that. I applaud what Bank of America is doing. It’s time for other banks to recognize reality.

JUDY WOODRUFF: The Treasury Department is working on similar efforts with other lenders. That program will be announced tomorrow.