Tag Archives: HAMP

Toil Index and Tax Credits for Home Ownership

Robert Schiller from Yale gave props to Richard Green of USC for his recommendation that there be a targeted tax credit to encourage homeownership.  Green and Andrew Reschovsky of Wisconsin have studied the data closely are clear that the real benefit of existing tax policy allowing a standard deduction for interest on mortgages is for more wealthy homeowners who itemize their taxes.  They have concluded that this primarily encourages them to build bigger houses, rather than distributing the benefits as real incentives to home ownership.  The multi-billion dollar tax loss of interest deductions is the largest US investment in citizen wealth, and despite the fact that this investment has created homes as the single largest source of citizen wealth for many working families, the recent recession has now wiped out wealth for such families and destroyed confidence without offering an alternative for low-and-moderate income families to create wealth.  I’m not sure that these professors are right, but at least it is a way to go until we can right-size solutions to our current predicament and the emerging future.

Robert Frank of Cornell helped defined challenge to the middle class by creating what he called a “toil index” to puzzle out a problem he had recognized from Elizabeth Warren and her daughter’s book about the “two income trap.”  That problem was essentially that middle income families were being pushed into buying houses past their means in order to secure good schooling for their children.  He notes that, “The increase in the toil index has been spectacular.  From a postwar low of 41 hours a month in 1970, it rose to more than 100 hours in 2005.”

If a family is lucky, and it takes a lot of luck these days, to have two breadwinners working fulltime 100 hours of work would still be almost one-third of their income going to put a roof over their heads.  That doesn’t work under any calculation either for a family or for the entire economy which despite the failures of HAMP, Treasury, and the Obama Administration to address, is still very important to the US economy and the recovery from neighborhood to neighborhood around the country.

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Reckoning Coming for Home Modification Failures

New Orleans Home WreckageThe good news is that more people are recognizing that the Administration’s HAMP program designed to achieve home mortgage modifications and prevent foreclosures has been a dismal failure.   The bad news is that the Republicans are arguing that rather than fix it and actually prevent foreclosures, the program should be killed to save money.  This in spite of the fact that of $75 Billion set aside for home mods, this Treasury Department approved and bank administered program has only triggered an expenditure of $1 Billion.  Banks really don’t want to modify the toxic mortgages, so they haven’t.  The Republicans rather than calling for reform seem to want to prove again that they are the banks’ running dogs.

The Wall Street Journal reported that of 2.7 million applications less than 700,000 homeowners have anything to show for it.  By “anything,” I mean these lucky few got some relief, some reduction, some forbearance, because unfortunately the statistics indicating the number that actually received permanent modifications on their mortgages would have been smaller still.

Luckily this was not a big problem.  As the Journal reports:  “Almost 6.7 million U.S. homes were lost to foreclosure, short sales or turned back to lenders between 2000 and 2010, according to Moody’s Analytics. Another 3.6 million could meet the same fate through 2013.”   Ok, you’re right.  It’s not quite fair to lump 10,000,000 foreclosures over a decade on the shoulders of a 2 year old program, but it is right to say that this is a huge issue for an amazing number of families, homeowners, and voters, so it’s a surprise it has been handled so cavalierly by friend and foe.

Journal reporters, Alan Zibel and Louise Radnofsky go on to bell the cow without hearing the peal:

The White House launched the HAMP program in 2009 as a broad attempt to reverse the rising number of home foreclosures by reducing families’ mortgage payments, typically by lowering the interest rate and extending the term of a loan. But the administration’s strict eligibility criteria resulted in far lower participation than expected.

This translated into a smaller cost to taxpayers. Two years ago, the Obama administration said as much as $75 billion would be needed for HAMP. About $1 billion has been spent so far.

The program has faced sharp criticism. Neil Barofsky, the departing special inspector general overseeing the program, has faulted the administration for launching it with inadequate analysis and only partially developed guidelines. This led to delays and confusion, and the program “continues to fall short of any meaningful standard of success,” he said a report released in January.

House Republicans have called the program a waste of money and are considering a bill this week to end the program. “In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners,” Rep. Spencer Bachus (R., Ala.) said last week.”

“More harm than good….”  What could Congressman Bachus be thinking?  That no program is better or even more importantly that fixing this program and finally getting it to work wouldn’t do a lot of good?  He can only be thinking of the disappointment that many homeowners have felt as they allowed themselves to hope, and then lost their home while waiting for a promised modification from a bank.

The Republicans are looking at the wrong electoral and political math.  They want to be heroes, they need to step up and make HAMP work rather than playing pretend about the devastation of the housing crises as the Treasury Department banker enablers have been doing.

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