Government Foreclosures Program Must Save Millions of Homes

The government foreclosures program needs to make a bold move now before millions more of foreclosures clobber the whole country again, according to housing analysts and economists.

Economists believe that if the current pace of foreclosures and home loan modifications stay the same, there would be about 9 million more foreclosures by 2012.

Guy Cecala, head of a mortgage industry publication, said that he could not find a positive sign that could signal the start of economic recovery for the country.

Kathleen Engel, a law professor at Cleveland State University, said he has been studying mortgage securitizations and she found that tax liabilities arising from loan modifications are hindering many mortgage lenders from modifying loans. She said the government foreclosures program should include active participation from the U.S. Internal Revenue Service.

Among Engel’s recommendations to expand the government foreclosures program are the removal of the tax liabilities of trusts represented by lenders that modify loans, the extension of the federal $8,000 first-time home buyer tax credit program to higher income levels and to move-up homebuyers that already own homes and the provision of direct federal loans to distressed homeowners so that they can save their homes.

Engel said that the high jobless rate is pushing more families to foreclosures, which are in turn pushing down home prices and hindering the recovery of the housing market and the national economy.

Recently, Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan sent letters to the CEOs of the 25 largest mortgage services in the country to pressure them to step up their loan modifications. They said that only around 270,000 loan modifications have been worked out, which is far below the 5-million target of the government foreclosures program.

A team of House Democrats also made a move last week to push the government foreclosures program to do more. The group of Senate Finance Committee Chairperson Chris Dodd and 19 other committee members also wrote Secretary Geithner to develop and implement a more forceful strategy.

However, housing and mortgage analysts said there is no current law that can force mortgage lenders to make loan modifications. They said that the legislators pressuring the federal government to make aggressive moves are to be blamed. They were the ones who rejected the proposal that would have forced mortgage lenders to help more distressed homeowners under the government foreclosures program.

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