During the 2008 presidential campaign, Barack Obama promised to create a $10 billion foreclosure prevention fund. In 2009, he made good on his pledge, and more, creating a $75 billion foreclosure prevention (loan modification) program as part of TARP. Officials said it would help 9 million homeowners avoid foreclosure. PolitiFact.com, the Pulitzer-prize winning website, at the time gave him a "Promised Kept." In early 2011, however, based on data that just 500,000 homeowners had received loan modifications from banks through the Obama program, Politifact.com revoked the "promised kept" and changed it to "promise broken." Investigations revealed the program had been "weakened, perhaps fatally, by lax oversight and a posture of cooperation—rather than enforcement—with the nation's biggest banks." The special inspector general for the Troubled Asset Relief Program, Neil M. Barofsky, penned a damning op-ed in the New York Times, calling the housing program "a colossal failure," blaming a lack of enforcement on the part of the U.S. Treasury Department.
See By the Numbers: A Revealing Look at the Mortgage Mod Meltdown (ProPublica, March 8, 2011)
The $700 billion TARP (Troubled Asset Relief Program), bailed out the nation's leading banks in October, 2008. Barofsky noted that TARP successfully prevented a meltdown of the financial system, and turned financial institituions that were on the verge of collapse into profitable businesses. "These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail," he wrote. But TARP had other important goals, including protecting home values and the preservation of home ownership.
The banks seemed to purposely thwart Obama's loan modification program, preferring to foreclose on homeowners and callously disregard program guidelines, Barofsky said. Many attempted modifications have failed, due to poor administration by the banks.
Instead of 8.5 million homeowners saved from foreclosure, 8 to 13 million were likely to lose their homes, Barofsky wrote in March 2011. And the too-big-to-fail-banks could expect another bailout despite their reckless behavior:
The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.
PolitiFact.com has not yet rated the Obama Administration's February 2012 $25 billion National Mortgage settlement with the banks over the housing crisis, which depending on how the banks respond, may or may not prevent more foreclosures and auctions of homes, lowering property values for entire communities.
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