New York : The Obama administration's $75 billion (Dh275.5 billion) programme to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Barack Obama announced the programme in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief.
Critics increasingly argue that the programme ‘Making Home Affordable' has raised false hopes among people who simply cannot afford their homes.
Some experts argue the programme has impeded economic recovery by delaying the process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate.
Temporary solution
"The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis," Kevin Katari, managing member of Watershed Asset Management, a hedge fund, said.
Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties, he argues, will housing prices drop to levels at which enough Americans can afford to buy.
The Treasury Department publicly maintains that its programme is on track. But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.
In November, the Treasury Department started the Foreclosure Alternatives Programme to encourage arrangements that result in distressed borrowers surrendering their homes.
The programme pays incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages.
Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis. In 2008, more than 1.7 million homes were ‘lost' through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody's Economy.com. Last year, more than two million homes were lost.
"I don't think there's any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis," said Mark Zandi, chief economist at Economy.com.
"For some folks, it is doing more harm than good, because ultimately, they are going back into the foreclosure morass."
— New York Times News Service
