Obama Administration says to the Forclosed “Hit the Road Jack” | Loan Modification Program is Foundering

Obama administration sings new tune on foreclosures

By Tami Luhby|CNN

The shift in rhetoric signals the Obama administration is recognizing that its loan modification program is foundering.

The Obama administration is singing a different tune about foreclosures.

A year ago, officials focused on stemming the foreclosure tide. Now they are touting the need for foreclosures to rebuild the housing market.

Last week Phyllis Caldwell, head of the Treasury Department’s Homeownership Preservation Office, told a congressional panel that “an important part of ensuring longer-term stability in the market is to enable properties to be resold to families who can afford to purchase them.”

And White House Press Secretary Robert Gibbs last month told reporters that without sales of homes in distressed areas the “recovery in the housing market stops. It’s frozen.”

“That obviously can have — we believe and others believe — a very negative and detrimental impact to our economic recovery efforts and the housing markets in states that have been hardest hit,” Gibbs said.

But when Obama unveiled his signature foreclosure prevention program in February 2009, he said loan modifications were a key way to prevent the housing crisis from deepening. His initiative called for reducing distressed borrowers’ monthly payments to 31% of their pre-tax income.

“We’re not just helping homeowners at risk of falling over the edge; we’re preventing their neighbors from being pulled over that edge too — as defaults and foreclosures contribute to sinking home values, and failing local businesses, and lost jobs,” the president said.

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