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Simple $50 Billion Stimulus: Spend Money Allocated to Housing Relief

In the wake of bad economic news, we’ve heard about this proposed shift in the Administration’s emphasis, from the deficit to jobs, though it’s hard to see how that will consist of anything but rhetoric. White House officials will tell you that they simply don’t have the votes to enact a big stimulus package, given GOP control of the House. Why this prevents them from suggesting a program that would actually work to lower unemployment is just beyond my 11-dimensional chess-playing abilities.

But the Administration could very easily enact a $48 billion stimulus that would deal with what they acknowledge is one of the most crippling issues in the economy. That would simply be through using current spending authority on a series of housing-related programs, aimed at reducing mortgage debt. The current programs aimed at foreclosure relief are mismatched to current realities about the population of struggling borrowers. These days, unemployment is the main driver of foreclosure, not rate recasts or exploding subprime loans. For this and other reasons related to design flaws, much of the money allocated to these programs has not been spent. HAMP and its related programs were allocated $50 billion in early 2009 to deal with foreclosures (Treasury puts this number at $46 billion, but $50 billion was the initial number); to date, it has spent $1.85 billion. Even the “Hardest Hit Fund,” which was supposed to go to the states most powerfully affected by the foreclosure crisis, has seen only 6% of the total allocation spent. Ironically, most of these are swing states, where the Administration would benefit from actually fixing the foreclosure crisis.

The Administration made most of these programs voluntary so the banks would not have their own discretion to actually reduce mortgage debt for their customers. And the results were predictable. By now, the Treasury Department says they cannot alleviate these problems, constrained from making changes to the programs. But just in the past week or so they changed HAMP guidelines to force a single point of contact. The idea that there’s a power imbalance between the federal government and mortgage servicers is really ridiculous. To the extent there is one, it’s because Treasury wants it that way.

Reuters reports that the Administration now sees the value in reducing mortgage debt, three years too late. But there’s still this coded language about “fairness” thrown into these discussions.

“We are very definitely trying to facilitate more principal reductions,” said Timothy Massad, Treasury’s acting assistant secretary for financial stability. “It is a very important piece of the overall solution,” he said.

The administration is trying through taxpayer-funded programs to prevent homeowners from losing their homes. Nearly $50 billion has been set aside from the $700 billion bank bailout known as the Troubled Asset Relief Program, or TARP, to help distressed homeowners […]

“There are issues of how you do it, making sure it’s fair, making sure you don’t create the wrong incentives,” Massad said.

Let’s talk about fairness. Here’s a guy who got a foreclosure notice because of a $0 balance. That’s not a typo. The servicer software is so messed up that the man’s payments were put into the wrong account, and so the notice said his home would be seized if he didn’t immediately pay zero dollars and zero cents. And the man couldn’t resolve the matter until he got the local media involved.

And we’re talking about fairness over who benefits? What about fairness for the borrowers who have dealt with a corrupt, fraudulent, runaway servicing industry for years?

But these imaginary barriers will continue to be placed, keeping any actual relief for homeowners that would have a negative impact on the banks just out of reach.

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David Dayen

David Dayen