Despite Government’s Best Efforts, Unemployment Stinks

According to the New York Times, the federal government’s programs to save unemployed homeowners from foreclosure are failing. Somehow “no income” and “mortgage payments” just don’t mesh:

Critics of the Obama administration’s approach to preventing foreclosures have pressed for two years to get officials to focus more of their attention on unemployed homeowners, with meager results. As part of the bank bailout, the Treasury Department was given $46 billion to spend on keeping homeowners in their houses; to date, the agency has spent about $1.85 billion.

Morris A. Davis, a former Federal Reserve economist, estimates that as many as a million homeowners slipped into foreclosure because of insufficient help for the unemployed.
“The money was there and they didn’t spend it,” said Mr. Davis, an associate real estate professor at the University of Wisconsin. “I don’t mean to sound outraged, but I am pretty outraged.”

Administration officials said their programs have had a positive impact, albeit not as large as they had hoped. But they say that the problems of unemployment and negative equity on homes are not easily solved. They also say programs to curb foreclosure are voluntary, so they are limited in how far they can push mortgage servicers and investors, who often make more from foreclosures than from offering aid.

“We are trying to be careful in designing programs that at the end of the day aren’t just about spending money but getting people back on their feet,” said James Parrott, a senior adviser at the White House’s National Economic Council.

President Obama has been scrambling to curb the number of foreclosures ever since he arrived at the White House.

At the start of 2009, the administration announced its primary foreclosure prevention initiative, the Home Affordable Modification Program. It provides incentives to banks to modify mortgages, reducing monthly payments for eligible homeowners.

The administration said the program would help three million to four million homeowners, but so far, only 670,000 homeowners have received permanent modifications. In addition, the program was primarily meant for homeowners with risky mortgages; jobless owners are often ineligible because some payment, albeit reduced, is required.

I could have warned them about this. The beginning of the bust found me working in a bank’s loss mitigations department — “loss mitigations,” in this case, being euphemistic finance jargon for “Wave adieu to the bourgeoisie, poor blighter.” Our job was to do everything within reason to avoid having to foreclose. Our motives were entirely selfish — foreclosing on a house presents banks with major headaches. First, it has to jump through the legal hoops — drawing up the papers, and if necessary, getting the sheriff to march the former owner off the property. Next, it has to unload the house, normally at a considerable loss. (The fact that many of the interested properties had been bought at insanely inflated prices, or refinanced to reflect insanely inflated values, didn’t help much.)

Sometimes, the former owners would trash the places,ripping appliances out of walls — either for spite, or because they’d decided they needed a new washer and dryer in their rental.

For those reasons, foreclosing is usually the last thing any bank wants to do. Us loss-mit reps used up a good portion of our day begging fatalistic borrowers, “Don’t you even want to try to have your loan modified? What about a nice short sale, huh? Come on, I’ll be your best friend!” The bank might send out its foreclosure notice three months after it stops receiving the mortgage payments, but it won’t even attempt to take possession of the place for six or seven months more — at least mine didn’t. Up until that last moment, if a borrower came up with an idea that would make it possible for him to stay, we were all ears.

Most of the people who ended up leaving left because they were unemployed and getting zero income. There wasn’t a whole lot we could do with zero, I’m afraid. And, unfortunately, finding a new job was never a question of jumping on Craigslist, clicking on a link to their field and sending in a few resumes. The truly stricken worked in industries that had caved in. In fact, quite a few of them had made their fortune in housing, either as builders, realtors or loan officers. Keeping them in their houses could have meant waiting four years while they went back to school ear earned another degree.

So, sorry, gents, but to this very humble former industry insider, this looks like a quixotic venture. Something tells me the windmills won’t be taking any dives.