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Administration Says “No We Really Mean It This Time” on Foreclosure Mitigation

So this is kind of funny: the White House is telling its allies that they will “take a more aggressive role” to protect homeowners this year.

First off, we have had a crisis in housing and foreclosures every year of the Obama Administration. By stating that they will be more aggressive this year, the White House concedes they’ve been stunningly placid about this crisis in 2009, 2010 and 2011. This was at a time when a million families per year were losing their homes. Just looking at the tally on HAMP – only $2.4 billion of a $50 billion kitty used – shows this incredible lack of aggressiveness. So with that three-year track record, I’m not sure why I should believe this. That’s especially true when the White House’s political fate all along has been tied almost directly to housing, given its impact on the overall economy. But apparently, they “got the message.”

“There’s an understanding now in the administration that there needs to be a comprehensive strategy to diminish the foreclosure rate and clean up the housing problem,” said Rep. Barney Frank (Mass.), ranking Democrat on the Financial Services Committee, which has jurisdiction over the mortgage giants Fannie Mae and Freddie Mac.

Frank said the economy is showing good movement but argues to achieve a full recovery the administration needs to do something comprehensive on housing.

“There’s a lot of conversation going on,” Frank said of talks with the administration to find solutions that do not require the expenditure of taxpayer money, a constraint during a time of record budget deficits.

I know what wouldn’t require any taxpayer money: using the money already earmarked for foreclosure mitigation. Which is the non-trivial amount of over $40 billion.

Short of that, plenty of other things would hold the taxpayer harmless. Allowing mass refinancing through Fannie and Freddie in “son of HARP” doesn’t cost a dime, although that’s more a stimulus measure than a measure that will save homes. Another relatively costless solution – prosecuting banks for their document errors in the foreclosure process. This would shut down the foreclosure pipeline and force banks to come up with some solution to deal with the mess they caused, which could easily be a mass principal reduction program in exchange for getting good paper on the loans.

The actual policies on the table are modest at best. Extending 12 months of forbearance to unemployed borrowers rather than 3 (now, unemployed borrowers would be free of mortgage payments for a year, with the balance applied to principal on the back end) doesn’t really help anyone who’s underwater; in fact, it makes their situation worse. Son of HARP isn’t going to keep people in their homes. And meanwhile, the Administration is trying to persuade state AGs to give up legitimate claims against the banks in a doomed global settlement. So spare me the talk that this is the year for housing. Less talk, more action.

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David Dayen

David Dayen