President Barack Obama reportedly is considering stopping all home foreclosures unless they have been rejected by the administration’s struggling $75 billion mortgage assistance program.
The move comes as Republicans take aim at Obama’s mortgage assistance program. Republicans argue the effort is making the economic crisis worse and say many homeowners would be better off as renters.
The president has been trying to convince investors and the general public that the country is slowly emerging from the recession, but the threat of foreclosures and a faltering housing recovery has been looming over the economy.
Meg Reilly, a Treasury Department spokeswoman, told Bloomberg that the proposed foreclosure ban was “one of the many ideas under consideration” in Obama’s attempt to stabilize the housing market.
“This proposal has not been approved and there are no immediate planned announcements on the issue,” she wrote in an e-mail. She confirmed the authenticity of the plan, which hasn’t been made public, Bloomberg reported.
Right now, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for Home Affordable Modification Program, or HAMP, eligibility. Under current rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification.
The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan, Bloomberg reported.
Meanwhile, Reps. Darrell Issa, R-Calif. and Jim Jordan, R-Ohio., on Thursday called the program a misuse of taxpayer money, The Associated Press reported. Though $75 billion has been set aside for the program, so far only $15 million has been spent.
The lawmakers also said Obama's plan distorts the housing market by keeping people in their homes who would be better off going through foreclosure.
Homeowners who enroll in the program but then drop out "would have been better off if they had defaulted earlier and spent the payments on more affordable housing options," the two lawmakers wrote.
Obama administration officials, however, reject that argument. They say the program gives a second chance to homeowners who were given shoddy loans during the housing boom.
And they defend their track record, even though only 116,000 homeowners have completed the process out of the 1 million enrolled since the program's launch last March.
Earlier this week, Freddie Mac, which has lost a total of almost $80 billion since the housing crisis started in 2007, said a record 4 percent of its borrowers are at least three months behind on their payments and facing foreclosure.
Freddie Mac Chief Executive Charles Haldeman warned a "potential large wave of foreclosures" may sweep the nation.
The faltering housing recovery and threat of foreclosures are major problems for the federal government, which seized control of Freddie Mac and Fannie Mae in September 2008. The two companies have already siphoned $111 billion from the government to stay afloat. That number is expected to hit $188 billion by fall 2011.
Meanwhile, the Obama administration reportedly also is considering forcing lenders to make principal reductions to help struggling homeowners.
Asked about the possibility of using principal reductions on mortgages to stem the tide of foreclosures, Phyllis Caldwell, chief of the Treasury's Homeownership Preservation Office, said the department was open to the idea, Reuters reported.
"Our office has been aggressively considering proposals on all areas that we can do to address the foreclosure crisis in this country," Caldwell told lawmakers on the House Oversight and Government Reform Domestic Policy Subcommittee.
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