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On third anniversary, TARP mortgage aid lags

Mortgage troubles

Kai Ryssdal: State attorneys general share some of the protesters' anger at banks -- if not the willingness to take to the streets. For a year or more all 50 state AGs have been trying to pull together a multi-billion-dollar settlement that would force banks to own up to some of their worst mortgage practices.

But the united front is faltering. California has pulled out of the talks, others are likely to follow. It was -- ironically enough -- three years ago today that the TARP went into effect, the $700 billion bank bailout that was supposed to bring the economy back from the brink, which it did, and help struggling homeowners, which it really didn't.

Marketplace's Alisa Roth looks at what went wrong -- and where things stand today.


Alisa Roth: Almost 3 million homeowners who are facing foreclosure have sought help from the government through a TARP-funded program. Only a quarter have managed to get their mortgage payments reduced.

Adam Levitin is a professor at Georgetown Law School. He says the program had a fatal flaw in the way it was constructed.

Adam Levitin: It tried to approach the housing market in a way that it helped homeowners it thought were deserving, rather than just saying we need to have a macroeconomic impact here, and it's about numbers not about morality.

The Treasury says the plan wasn't intended to prevent every foreclosure. The program offered cash incentives to mortgage servicers to reduce mortgage payments for borrowers. But the conditions made it hard for a lot of homeowners to qualify. The government has spent only about $2 billion of the $50 billion the Treasury set aside. Levitin says:

Levitin: The problem is that the allocation for housing, even if they spent every cent of it, was too small by an order of magnitude.

Though TARP was wound down a year ago, homeowners can still apply for help through the foreclosure prevention program.

Neil Barofsky was the inspector general for TARP until he resigned earlier this year. He says the housing market needed more than just reducing the interest payments on mortgages.

Neil Barofsky: There are just too many homeowners who owe more on their mortgages than their homes are worth. And the underwater mortgages can really only be addressed through a strong principle-reduction program.

Reducing the balance on home loans was never part of TARP. And has been a stumbling block for other efforts to resolve the housing crisis.

I'm Alisa Roth for Marketplace.

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@Roxanne- When I said write down the debt, what I meant was foreclose on the nonperforming loans, resell the house to a family that will pay at the market price, and take the loss against earnings, and send a 1099 to the IRS for the previous homeowner to report the debt forgivness so tha tthey can make up the taxes the lender dodged on the loss. The system can't handle the moral hazard of letting people off the hook and its simply immoral to make people that weren't involved in the original transaction cover the losses. In order to function, the market needs the discipline that comes from people lossing money. The next time they will be less inclined to jump in on the next big bubble and get rich quick scheme. The home buyers that signed up to these risky loans wih the help of real estate professionals such as yourself are at least as culpable as the banks taking advantage of the GSEs to hand off crap loans. Thats crazy to think you deserve to refinance you house at today's artifically low rates without having to bring the cash to bring the loan above water. Would you lend your own money to someone with collatoral less than amount borrowed with further declines likely? Why do you think it's reasonable to force the taxpayers to do it?

I agree with the comment already posted by Jay Jay. I am a real estate agent and in the middle of this industry adjustment.

It occurs to me over and over again, the only ones profiting from this mess are the mortgage lenders as they put people into initial loans and then refinance homeowners again and again. I was struck when reminded about mortgagers getting incentives to refinance people. My family has not been able to refinance due to the drop in home value and we are RESPONSIBLE homeowners who have not walked away from our home even though we have had job losses & reduction in income.

I'm with the Occupy Wall Street People......When is the TARP or other economic boosting measures going to actually help the homeowners who faithfully purchased homes when the mortgage lenders were up to their shenanigans?

As a person who takes responsibility for my actions, I have not been in the camp which asks to be relieved of the underwater amount of our home. I only request to be able to refinance into current, historically low, rates. If my family and others could do this, there would be a lot more money entering the economy. Much more than other measures such as temporarily relieving employment taxes for everyone.

Taking this one step further, by actually using TARP funds to reduce the principle amount of underwater mortgages the housing market may be able to move again. Right now homeowners are stuck in homes unable to move because they cannot get out of their homes and have no extra cash to close the gap. I found this document on line: http://portal.hud.gov/hudportal/documents/huddoc?id=MAR201026.pdf. I expected Market Place to comment on this document and was saddened to hear the report stop short. Maybe this is not news as I could not locate a date of the document.

As a real estate professional, I have more homeowners renting their homes until the housing market recovers. I’m giving a 5-10 year time line for an exit depending upon the exact location of the home in my market. Please, someone help the people who were affected by the bad lending practices and stop rewarding the institutions & people who caused this problem.

"Neil Barofsky: There are just too many homeowners who owe more on their mortgages than their homes are worth. And the underwater mortgages can really only be addressed through a strong principle-reduction program."

Foreclosure is the solution, not the problem. Write down the debts, let the losses go to where they are deserved: to investors. All these programs are just moral cover to help the banks. Why is this piece asking a lawyer about economics? The price of housing went to high thanks to artifical and low interest rates. Now they're correcting back to normal. Why are they fighting so hard to protect one group of people at the expense of the others?

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