The Congressional Oversight Panel released a new report today, A Review of Treasury’s Foreclosure Prevention Programs. The headline should be that the redefault numbers are far worse than anyone imagined for the permanent modifications, making the program a complete failure. We’ll discuss that in the next post. First I want to discuss what makes me the most upset.
We need to travel back to January 2009. There’s a Republican-sponsored resolution to deny releasing the second half of the $700 billion dollars in the TARP fund. TARP, at this point, is very politically unpopular. What is being done with the money has no sense of transparency or accountability. And worse, none of it seems to be doing anything for the real economy or to stop the foreclosure crisis, a crisis which has kicked into high gear at this point.
With this spilling across party lines, the Obama team went to work. And one of the first things they did was have their team promise, led by Larry Summers in writing, that the administration would dedicated $50-$100 billion dollars for foreclosure relief and serious effort at bankruptcy modification in exchange for this difficult, both politically and ethically, vote. January 15th, 2009, Letter from Lawrence H. Summers to congressional leaders (my bold):
the President-Elect asked me to respond to a number of valuable recommendations made by members of the House and Senate as well as the Congressional Oversight Panel…
The Obama Administration will commit substantial resources of $50-100B to a sweeping effort to address the foreclosure crisis. We will implement smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners, while also reforming our bankruptcy laws and strengthening existing housing initiatives like Hope for Homeowners. Banks receiving support under the Emergency Economic Stabilization Act will be required to implement mortgage foreclosure mitigation programs.
This changed people’s votes. People like Senator Merkley (D-OR), who must have taken the new administration at its word. Here’s a local newspaper covering this fight, Oregon Live, January 15th 2009, Wyden, Merkley split votes on financial rescue:
Both houses debated Obama’s call to release another $350 billion from the financial bailout package, but the vote that mattered most was in the Senate. Despite bipartisan anger over the Bush administration’s handling of the program to date, Democratic allies of the incoming president prevailed on a 52-42 roll call. The money will be available in less than two weeks, at a time when there is fresh evidence of shakiness among banks.
The vote followed a commitment by Obama to use as much as $100 billion of the funds to help homeowners facing foreclosure proceedings…But Merkley said he voted to release the funds because the incoming Obama administration promised — in words and on paper — to dedicate between $50 billion and $100 billion to help struggling homeowners stay in their homes. Merkley said he expressed his concerns directly to Obama’s incoming chief of staff Rahm Emanuel and senior economic advisor Larry Summers.
“I have roundly criticized the first $350 billion … because it didn’t attack the challenge of families facing foreclosure,” Merkley said in an interview after the vote.
“So I have been immersed in the last several days talking with Rahm Emanuel, Larry Summers and Barack Obama on Tuesday … trying to make sure this package will contain very vigorous effort to attack the foreclosure problem,” he said.
That promise was realized Thursday when Summers released a letter promising to spend at least $50 billion to buy and rework distressed mortgages and other actions so that people can remain in their homes.
In exchange for getting the second half of TARP, the Obama administration promised publicly to dedicate at least $50 billion for foreclosure relief and to push for mortgage modification. One presumably could have trusted them as both of these seemed like the smart liberal thing to do, the reason you fight for Democratic candidates. Neither came to pass.
So about that Congressional Oversight Panel report. Page Five:
Finally, Treasury should accept that HAMP will not reach its original goals and provide a meaningful framework for evaluating the program in the future. Treasury continues to state that HAMP will expend $30 billion in Troubled Asset Relief Program funding, yet the Congressional Budget Office recently estimated that all of Treasury‟s foreclosure programs combined will spend only $12 billion. Given the Panel‟s cost estimates for Treasury’s other foreclosure-related efforts, HAMP thus appears likely to spend only around $4 billion. Had Treasury acknowledged this reality before its crisis authority expired, it could have made material changes to HAMP or reallocated the money to a more effective program. Now, that option is gone.
Read that again. Obama, Summers, Emanuel and others said they would deliver $50 billion to $100 billion in foreclosure relief, and they’ve managed to utilize only a small fraction of that. $4 billion on their signature program, maybe $12 billion in total. People took votes, politically difficult and unpopular votes, because of these promises, and they have failed to be delivered.
Is there any reason to believe that Treasury put any muscle into fighting for cramdown? That they considered it one of the major things that needed to move in 2009? I can’t find any fingerprints anywhere, and the general impression I get was that they were hostile or coldly indifferent – though if there is evidence they fought hard I’ll be glad to post it. One can’t find efforts by Treasury to push for cramdown, while their fingerprints being all over Dodd-Frank amendments is well-documented, so it’s not their indifference to Congressional policy making.
Here’s my only question: At what point did they realize they wouldn’t fulfill this promise? Months later during the stress test? When they made the promises? Do they even know? During the blogger background meeting administration officials believed that they were going to spend at least $50 billion. Are the numbers not even on their radar?