Fading housing hope

Source: Washington Post Editorial (Free Registration)

PASSED BY Congress in July and put into effect on Oct. 1, the federal government's Hope for Homeowners program was billed as strong medicine for the twin ills of rampant foreclosures and sagging home prices. Advocates argued that it would help stave off recession by delivering mortgage relief to the most deserving of distressed homeowners -- all while creating the least possible taxpayer expense and avoiding perverse incentives. Basically, the plan was to offer as much as $300 billion in government-guaranteed home loans to people whose current mortgages exceed the value of their houses; 400,000 people would benefit, it was said. Well, the early returns are in, and the program is, at this point, a flop. There have been only 312 applications, according to the Department of Housing and Urban Development. At that rate, the three-year program would help only about 5,400 borrowers. We hate to say we told you so, but -- we told you so. Except that we never guessed that the program would perform quite this poorly. The Bush administration and the program's congressional author, House Financial Services Committee Chairman Barney Frank (D-Mass.), are now engaged in a blame game, with Bush officials saying that the program is a victim of burdensome conditions imposed by Congress and Frank asserting that he only agreed to those conditions as the price of a politically acceptable bill. Each side has a point. Mortgage relief causes genuine ambivalence among Americans of good faith. They feel sorry for their neighbors and want protection against an uncontrolled housing collapse, but they don't think it's fair to spend taxpayers' money bailing out people who took on unaffordable loans and the bankers who enabled them. Hope for Homeowners tried to keep everyone happy by requiring lenders to sacrifice some of the principal value of homes while requiring borrowers to give up future profits and assume monthly payments of at least 31 percent of their incomes. This may have been the best available deal, politically, but it doesn't make sense, economically, for very many people. Therefore, hardly anyone has chosen it.

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