The House Financial Services Committee will vote this week on four related bills that would terminate the Home Affordable Modification Program and three other government programs aimed at preventing foreclosures or mitigating their impacts.
Committee Chairman Rep. Spencer Bachus, R-Ala., has characterized the targeted programs — which also include the FHA short refinance program for underwater homeowners and the Department of Housing and Urban Development’s Neighborhood Stabilization Program — as "failed and ineffective."
The four bills to be considered are The HAMP Termination Act, The FHA Refinance Program Termination Act, The NSP Termination Act and The Emergency Mortgage Relief Program Termination Act.
Republicans hold the majority of seats on the committee and the House itself, but if approved by the House the four bills would face tougher going in the Senate and be subject to a presidential veto.
Altough the HAMP program has been criticized on many fronts, the Obama administration and other defenders of the program say borrowers in HAMP loan mods have been less prone to redefault than those who received loan modifications outside of the program. HAMP bought time for many borrowers who didn’t end up qualifying for permanent modifications, the program’s defenders say.
The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has questioned whether HAMP will ever meet its original goal of helping 3 million to 4 million homeowners, and reports by the Congressional Oversight Panel for the Troubled Asset Relief Program and the U.S. Government Accountability Office have also been critical.
In an October report, SIGTARP dismissed the Treasury Department’s claim that borrowers granted temporary loan modifications received a "significant benefit" whether they qualified for a permanent loan mod or not as either "hopelessly out of touch with the real harm that has been inflicted on many families, or a cynical attempt to define failure as success."
Republicans are also targeting a program launched Sept. 7 by the Federal Housing Administration that allows underwater homeowners who are current on a non-FHA loan to refinance into an FHA-backed loan when their lender agrees to write off at least 10 percent of their principal.
The so-called "short refinance" program has also gotten off to a slow start, in part because of eligibility requirements. Only 35 applications had been submitted as of Dec. 13, Bachus said in the press release.
Borrowers must meet FHA’s income, appraisal and debt-to-income standards, and the maximum loan-to-value ratio is 97.75 percent. But the combined loan-to-value ratio can be up to 115 percent, allowing for subordination of second loans or new subordination of some of the unpaid first loan, FHA Commissioner David Stevens said in a letter defending the program in December.
Also targeted for termination is the Neighborhood Stabilization Program, which provides funding for state and local government agencies to acquire, redevelop or demolish foreclosed properties.
Congress appropriated $7 billion for the program, which HUD has estimated will be used to buy about 100,000 properties.
Critics of the program say it doesn’t help at-risk homeowners facing foreclosure and may create incentives for banks to foreclose on troubled borrowers, according to Bachus.
The NSP Termination Act would end the program and rescind the unobligated portion of a $1 billion third round of funding, authorized in July with passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
HUD announced in September that it would allocate at least $5 million to every state in the third round of funding, with larger amounts earmarked for:
- Alabama ($7.6 million),
- Colorado ($17.3 million),
- Connecticut ($9.3 million),
- Georgia ($50.4 million),
- Kansas ($6.1 million),
- Massachusetts ($7.4 million),
- Maryland ($6.8 million),
- Minnesota ($12.4 million),
- Missouri ($13.1 million),
- Nebraska ($6.2 million),
- New Jersey ($11.6 million),
- New York ($19.8 million),
- Rhode Island ($6.3 million),
- South Carolina ($5.6 million),
- Tennessee ($10.2 million),
- Texas ($18 million),
- Virginia ($6.2 million) and
- Wisconsin ($7.7 million).
A fourth bill under consideration by the House Financial Services Committee would terminate HUD’s Emergency Homeowners’ Loan Program (EHLP).
The Dodd-Frank bill provided $1 billion in funding for the program, to provide bridge loans of up to $50,000 to help eligible borrowers pay their mortgage insurance, taxes and hazard insurance for up to 24 months.
The program is aimed at assisting borrowers in 32 states not receiving aid under the Treasury Department’s "Hardest Hit" program.
"These loans will serve to increase the amount of the borrower’s indebtedness, so a borrower who is unable to pay back either the original amount of principal or the additional loans made under the program will be worse off in the long run," Bachus’ office said.