The smoldering train-wreck of the 2008 housing collapse led to many changes in governmental policy towards a variety of finance related topics. A major implementation under the Obama administration was an attempt to mitigate foreclosures through a number of Foreclosure Aid programs. With 2.5 million homes having been foreclosed on since 2009 and an additional 4 million either seriously delinquent or already in the foreclosure process, it makes sense that these programs would have been implemented to stem the tide; foreclosures flood the market with cheap homes. When housing prices were already falling, depressing prices further would merely compound the problem and drag all prices down further.
The intent is surely noble, but how did these programs fare? USA Today provided a guideline:
Government Foreclosure Aid Programs | Home Affordable Refinance Program (HARP)
Goal: Help four to five million homes lower their interest rates of mortgages either backed or owned by Freddie Mac and Fannie Mae.
Results: HARP’s results are underwhelming, like every other program listed below it in this article. HARP only assisted ~929k, or a paltry ~21% of its stated target. Future adjustments might double this number, but that’s still less than half.
Government Foreclosure Aid Programs | Home Affordable Modification Program (HAMP)
Goal: This program featured a $19-billion-dollar budget to modify 3 to 4 million home loans to be more affordable for borrowers.
Results: Started in 2009 and by far the largest program in pledged outlays, HAMP managed 883k loan modifications, with a median of 37% in savings per month. Though this program did assist numerous families to better afford their loans, it only managed to meet 25% of its stated goal.
Government Foreclosure Aid Programs | Principal Reduction Alternative (PRA)
Goal: This program was designed to enlist the help of mortgage owners to forgive principal by utilizing a modification through HAMP. It started in 2010.
Results: While over 53,000 modifications were recorded, the premise of this plan was never likely to succeed. The lending system is predicated upon risk/reward calculations, so asking mortgage owners to forgiving principal, thus decreasing their total revenue and profits, was always a tough task.
Government Foreclosure Aid Programs | Second Lien Modification Program (2MP)
Goal: This program was a supplement to the HAMP program, announced in 2010. The goal was to adjust or eliminate a second lien against a property if the first lien had been adjusted through HAMP. Almost 50% of at-risk mortgages used second liens as backing. Loan modifications can be rejected by second lien holders.
Results: Though close to 50,500 mortgages were modified through this program, a late start and a lack of actionable data limited 2MP’s effectiveness. Numerous slow-downs over clerical errors, including misspelled names and incorrect addresses also slowed progress.
Government Foreclosure Aid Programs | Home Affordable Foreclosure Alternatives (HAFA)
Goal: This program promoted alternatives to foreclosure. Starting in 2010, the main thrust of promotion was for short-sales, when an owner sells a property for less than what is owed, and a deed-in-lieu, which is when a owner simply returns the property rights to the lender.
Results: With roughly 21,000 completed transactions, the majority of them short-sales, HAFA reached nearly 40% of its intended target. Though a failure by most standards, it is the most statistically successful of the Foreclosure Aid programs. Lenders and servicers were able to make greater profits by short-selling outside of this program, which may have skewed the numbers negatively.
Government Foreclosure Aid Programs | Emergency Homeowners Loan Program (EHLP)
Goal: This program from 2010 sought to provide loans to 30,000 homeowners facing foreclosure due to unemployment or reduction in pay. Under certain requirements, some loans could be forgiven. This program extended to 32 states and Puerto Rico.
Results: By any metric, EHLP failed to meet its expectations by a wide margin. Over half the allocated funds were returned to Treasury due to a number of failures that kept enrollment to under 12,000 participants. The program started over a year later than anticipated, most applicants failed to meet their deadlines and the majority of those who did submit properly were disqualified by strict requirements.
Government Foreclosure Aid Programs | Hardest Hit Fund
Goal: This program, launched in 2010, was location specific, with the goal of providing emergency lending for 500,000 homes with financial hardships. The loans were intended to be six to twenty-four months in duration, with no penalty if the owner was able to pay them off successfully.
Results: Beset with a myriad of issues, most notably a slow start. Only $113 million had been loaned to date, and this program only managed to assist 3.8% of its intended targets.
Government Foreclosure Aid Programs | FHA Short Refinance
Goal: This program was launched in 2010 with $2.7 billion allocated to modify second liens. The goal was to use these funds to assist in the refinancing of 500,000 to 1.5 million homeowners to low interest FHA loans.
Results: In what must be among the most jaw-dropping failures in quite a while, this program failed to make any impact at all. Through September, FHA Short Refinance had created 334 refinances, or 0.67% of its stated goal. The FHA Short program essentially asked lenders to forgive the principal of loans, foregoing profits to assist borrowers, which (predictably) the lenders generally balked at.
It is hard not to look at the results, especially of the comically proportioned failure of the FHA Short program, and not feel some degree of amazement. Many of these programs were likely well intentioned, but most (if not all) were essentially impractical from the start. Sadly, the government proved itself to be a rather unreliable ally to homeowners in trouble, precisely at a time when American homeowners most needed help.
Perhaps the greatest repudiation of the government’s efforts is yet to come. There is reason to believe homeowners to who used private real-estate professionals to guide them are faring better than those who attempted to access government funds. Given the choice, a private real-estate professional would likely be the better ally to a homeowner if they find themselves in distress.