Republicans are taking aim at the Obama administration's struggling mortgage assistance program. They argue the effort is making the economic crisis worse and say many homeowners would be better off as renters.
In a report Thursday, Reps. Darrell Issa, R-Calif. and Jim Jordan, R-Ohio., called the program a misuse of taxpayer money.
Though $75 billion has been set aside for the program, so far only $15 million has been spent.
They also said it 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.
The program "is providing critical assistance to borrowers experiencing a range of financial hardships and who would otherwise be facing the loss of their homes," said Phyllis Caldwell, chief of the Treasury Department's homeownership preservation office in testimony prepared for a House hearing.
The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. To complete the process, homeowners need to make three payments and provide proof of their income, plus a letter documenting their financial hardship.
But experts warn that hundreds of thousands of borrowers will not complete the process because they are found to be ineligible during an initial trial phase. Housing counselors complain that many homeowners remain stuck in limbo without final word on their applications
Treasury officials acknowledge that the treatment of borrowers under the program has been a problem. They have been working on new consumer protections such as giving those rejected from the program 30 days to appeal the decision and barring lenders from lenders continuing with foreclosures while homeowners were being evaluated for help.
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