More U.S. mortgage help isn’t needed

August 31, 2011

By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

There’s talk of yet more government help for careworn American mortgage borrowers. Washington has already made Herculean efforts. But there’s no magic bullet and returns are diminishing.

Refinancing has recently returned to the agenda. The idea is to find ways for borrowers who are underwater, or nearly so and so unable to meet the usual criteria to replace their mortgages — to benefit from current low interest rates. This has actually been tried already, with miserable results.

Two years ago, President Barack Obama’s administration set up a program called HARP precisely for this purpose. Yet fewer than 1 million of the anticipated 5 million to 6 million borrowers have so far benefited from the scheme. Meanwhile, Obama’s much touted mortgage modification program, known as HAMP, has also led to fewer than 1 million people having their monthly payments permanently reduced, a far cry from the 3 million to 4 million initially expected. Both programs are still open.

A big hurdle to any such effort is the role of private sector banks. Banks’ mortgage servicing operations, which do all the paperwork, are overloaded and in some cases seem to lack even a basic level of competence. The Nevada attorney general, for instance, wants to tear up a 2008 settlement with Bank of America because of its subsequent bungling of loan modifications.

And while even Detroit got a car czar, there is no single government entity in charge of the multitude of housing-related initiatives. Treasury, the Department of Housing and Urban Development, the Federal Housing Finance Agency, the Federal Reserve and a host of other agencies all have their hands on the ball — but no one is accountable for watching the game, and many of the entities are distracted by other responsibilities.

That may help explain why the government’s initiatives have met so little success. The Fed’s first round of quantitative easing was an exception. It crucially stabilized the mortgage bond market and helped drive interest rates down. Banks may be standing in the way of other programs, but short of forcing them to act, new government schemes are doomed to similar ineffectiveness. The housing market will eventually recover on its own. At this stage, it would be better for lawmakers to deploy precious capital, real and political, elsewhere.


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Consumers make up 70% of GDP
There are millions of underwater mortgages
This is a balance sheet recession caused by the housing price crash
House prices are far below the principle balances on millions of homes
The longer that this inequity goes unaddressed, the longer the recession will last.
This article does not offer a solution to the problem
Here’s one: write down the principle of all mortgages that are underwater to current fair market value. Make the whole banking system pay for the write downs out of future profits until the full write down amount has been repaid.

Posted by lotuslandjoe | Report as abusive

Ms. Crane,

The HAMP program, despite all it’s publicity, is NOT a program intended to help homeowners. It is intended to help INVESTORS in mortgage backed securities. If it’s really intended to help homeowners how can you explain the fact that it categorically excludes homeowners with equity. (see FDIC HAMP Guidelines, page 3, and read the somewhat cryptic language about cash flow carefully.)

HAMP excludes the very homeowners least likely to re-default… those with equity. (See stats on the HOLC included in the December 2010 Congressional Oversight Panel Report).

Homeowners with equity are the “low hanging fruit” of any legitimate program intended to help homeowners.

Saying that the housing market will eventually recover on it’s own is to ignore the pain that has been brought upon so many American’s by the banks’ massive fraud.

I’d like to be the doctor treating you if you came in with an excruciating migraine! I’d surely tell you, it will stop on it’s own eventually… no pain killers for you! (just making a point)

A legitimate program to help homeowners, like the HOLC of the 1930’s COULD really help many more homeowners. Consider that the HOLC actually went and knocked on homeowners doors trying to help them save their homes! (Goes to intent, not efficiency).

Instead we allow the banks to deny those with equity, and refuse to take write-downs on underwater homes, selling those same homes at auction for far less than the write-down value. Does this make sense?

Posted by JNMNS | Report as abusive