People in the administration “don’t understand how securitization works,” said one mortgage market participant in the sessions. “Ten million ideas were floated, but I think the complexity of the mortgage system was underestimated.” Members of the housing and borrower advocacy community—a group tied closely to Democrats and often at odds with lenders and banks—echoed that sentiment.
MISSING THE TARGET
Obama’s policy team spent the next two years tweaking the mortgage modification and refinance programs. The housing crisis was accelerating, the sputtering economy was presenting unexpected hurdles, and the political dynamics were shifting quickly away from the administration. All of this forced the housing-policy group to constantly rework initiatives on the fly, reexamining its programs at least every three to four months to judge their effect and discuss what additional steps were needed. More-frequent examination went on at the staff level and at the housing agencies.
Even then, though, the programs’ creators never viewed HAMP and HARP as the silver bullet. “Our basic view was to try and get as much on the ground as fast as possible, given the extent of the harm, and then to revise the programs as we went,” Barr said.
But it soon became apparent that the programs were not reaching, and would not reach, the number of people intended. By the third quarter of 2009, members of Congress were pressing the administration for concrete results, seeking to know how much money the administration had spent and how many homeowners it had helped. At a hearing on Sept. 24, Sen. Jeff Merkley, D-Ore., drove witness Herb Allison, then Treasury’s assistant secretary for financial stability, into a corner, forcing him to abandon the talking points and admit how little the program had accomplished.
“Are you familiar with how much TARP funds have been spent?” Merkley asked Allison from the dais in the Senate Banking Committee’s hearing room.
“Well, we have planned to devote $50 billion to the Making Home Affordable Program … ”
Merkley cut him off. “I’m not asking about the future. How much has been spent?”
“So far, we have committed over $22 billion … ”
“Not committed, but spent to date,” the senator demanded.
“Very little.”
Merkley pounced. “It is zero. It is zero dollars.”
Allison then coughed up another number that raised eyebrows among housing advocates and market lobbyists: Just 1,800 people had been moved into permanent loan modifications. By the end of that hearing, and certainly by the close of 2009, economists, housing experts, and the media had reached a consensus that Obama’s programs would not meet their goals. By 2011, both HAMP and HARP would be widely branded as failures.
The raw numbers support that assessment. The Obama administration in February 2009 vowed that its effort would help as many as 7 million to 9 million borrowers. Officials at all levels would come to downplay, even dismiss, these figures, but the government was crystal clear about them at the time. The president reiterated those targets in a speech in Mesa, Ariz. But neither program has come close.
Today, HAMP has yielded 951,000 permanent loan modifications, according to Treasury’s latest housing report. HARP has led to the refinancing of about 1 million mortgages over its almost three-year life span—just a quarter of the way to the low end of Treasury’s projections. “There was a PR disaster on HAMP,” Swire would say three years, almost to the day, after the programs’ inception. “Those numbers haunted the whole housing program.”
The administration—in both public and private—is now engaged in a campaign to minimize the targets and even sweep them under the rug, pretending that the projections never existed or at least never mattered. Massad, Treasury’s current assistant secretary for financial stability, told National Journal that the media put too much weight on the effect that Obama promised. “There has been often too much focus on, well, gee, what did the president say or what exactly did he mean,” Massad argued.
The core problem: Estimates for both programs were based on faulty, incomplete data. “There was always a huge degree of uncertainty around those forecasts, which reflected the limitations of the data available at that time,” said John Worth, who helped design the two initiatives as director of Treasury’s Office of Microeconomic Analysis. “We were sort of building the airplane as it was trucking down the runway, because there was a real sense of urgency to deliver help to homeowners.”
What’s clear now is that people throughout the administration knew within the first few months of the programs’ launch that the goals were no more than aspirational. And what about the target of 500,000 trial loan modifications by the end of 2009? When asked recently how that number was chosen, one of the officials who was at the center of the housing programs raised his hand and pretended to snatch something out of the air.
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