Carl Horowitz

The mortgage foreclosure crisis in this country may have been superseded by events in Japan, Libya and elsewhere for now, but it’s still taking a toll. And in the context of evidence that an Obama-initiated homeowner subsidy program to stem the tide isn’t working, a new federal agency stands poised to extract $20 billion from lenders on behalf of borrowers who for the most part shouldn’t have received loans in the first place.

Key housing market indices don’t look good. Some 3.8 million foreclosure notices on nearly 3 million homes went out in 2010, according to the Irvine, Calif.-based RealtyTrac. That 3.8 million represents an increase of 2 percent over 2009 and 23 percent over 2008. And this figure doesn’t include another 7 million or more homes that respected financial analysts such as Laurie Goodman and Alan Abelson say could wind up in the foreclosure pipeline over the next few years.

There’s more grim news. The Santa Ana, Calif.-based CoreLogic this month revealed that at the end of Fourth Quarter 2010, fully 11.1 million residential properties, or 23.1 percent of all properties with a mortgage, had negative equity. In other words, the amount owed on the loans exceeded the market value of the property, a condition commonly known as being “underwater.” The 23.1 percent figure is up from 22.5 percent for Third Quarter 2010. If home prices fall by another 5 to 10 percent in 2011, as many analysts now project, about a third of all homes in this country will be underwater.

The Obama administration knows these are scary numbers. The problem is that its preferred approaches to warding off calamity are at odds with economic and legal processes that could rectify the situation in a reasonably short time.

Back in March 2009, the administration unveiled its Home Affordable Modification Program, or HAMP. Worked out in consultation with FDIC Chairwoman Sheila Bair and other top federal officials, HAMP would stave off foreclosures and subsequent repossessions by reworking delinquent mortgages on more borrower-friendly terms. Policy ought to favor struggling homeowners over struggling banks, the argument went, especially in light of the latter’s reckless and at times fraudulent lending practices.

Carl Horowitz

Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a Gold Partner organization dedicated to promoting ethics in American public life.
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