WASHINGTON The top U.S. banking regulators said on Monday that some of their foreclosure prevention efforts are floundering and that they have no agreed plan for the future, two years into a housing crisis that has dragged the economy into a deep recession.
More than half of troubled borrowers face losing their homes even six months after lenders have eased their monthly payments, one regulator said, a discouraging sign for reversing a tide of foreclosures.
"The results, I confess, were somewhat surprising," said John Dugan, the Comptroller of the Currency, who oversaw the study and spoke on a panel with fellow regulators.
Sheila Bair, the chairman of the Federal Deposit Insurance Corp, said that aid efforts to borrowers were falling short while another regulator said Washington may be wasting money on foreclosure prevention.
"I do have concerns about allocating significant resources to loan modifications with such a high rate of re-default," said John Reich, Chairman of the Office of Thrift Supervision, which hosted its third annual National Housing Forum.
As home foreclosures swell to record levels, some consumer advocates have expressed frustration that regulators still have not developed a bold plan to arrest the crisis.
"It is exasperating that they keep talking about the need to do something about foreclosure, but they keep coming out with programs that miss the mark," said John Taylor of the National Community Reinvestment Coalition, an advocate for troubled borrowers.
PROBLEMS WORSENING, ACTION NEEDED
The FDIC and Federal Reserve agree that banks will foreclose on roughly 2.25 million homes this year -- more than double the 1 million annual rate seen before the housing crisis.
In a discussion of ways to address the problem, Federal Reserve Vice Chairman Donald Kohn said government spending on some mortgage-aid programs might be worthwhile.
"I suspect there are some high returns on federal dollars, if they are targeted at problems in a variety of different ways," he said.
Among her regulatory peers, Bair has become a leading voice for consumer protections. While she was relatively subdued during the panel discussion, she later disparaged Dugan's research and any suggestion that Washington ease up on mortgage aid.
"(The) data on redefaults raises more questions than answers because it fails to define, in any meaningful way, the modifications that have redefaulted," Bair said in a statement.
In recent months, Bair has noted that IndyMac Bancorp Inc has helped many thousands of borrowers save their homes through a blend of rate reduction, extending the loan life and erasing principle. The failed California thrift has become a petri dish for loan modifications ever since the FDIC took control in July.
The crumbling housing market is at the heart of the financial crisis that tipped the United States into recession and dragged down the global economy. Regulators are scrambling to find a way to stem foreclosures.
While Bair and many lawmakers have pushed for more consumer aid, the Treasury Department and regulators like Dugan have stressed that the financial system's overall health is key.
"Imagine how many foreclosures we would have had if we had allowed the financial system to collapse," Neel Kashkari, one of the Treasury's top housing policy-makers, said at the forum.
Scores of banks will receive allotments from a $250 billion cash kitty conceived by the Treasury to restore financial markets to health.
The department was given $700 billion in all to help soothe rattled markets and the Fed has pitched in with promises to buy over $600 billion in assets and debt from Fannie Mae and Freddie Mac.
"What we've done with ... Fannie and Freddie has the potential to be very powerful and we shouldn't lose sight of that," Kashkari said of the plan that pushed the interest rate on a typical home loan down by a half percentage point.