WASHINGTON (Reuters) - The Obama administration’s much-maligned program to help struggling homeowners was not meant to keep homeownership at unsustainable levels, and foreclosures are inevitable, Treasury Secretary Timothy Geithner said on Tuesday.
“This program was not designed to prevent foreclosures. It was not designed to sustain homeownership at a level that would be unachievable, imprudent to try and do,” Geithner said in testimony to the watchdog panel overseeing the $700 billion bank rescue program.
Geithner made the comments in response to a question about Treasury’s Home Affordable Modification Program from panel member Kenneth Troske, who said the increase in the homeownership rate in the past 15 years is a key source of blame for much of the housing crisis.
“My own view on the housing market is we’re not going to return to stability until we return a rate in which, you know, 65 percent of households own their own homes,” said Troske, an economics professor at the University of Kentucky.
Homeownership rates were about 65 percent from 1965 through 1995 and then surged to about 69 percent during the housing boom before falling to about 67 or 68 percent today, he said.
Geithner said he agreed with Troske’s assessment that housing will only stabilize as more homeowners become renters again.
“I think you’re describing exactly the objectives that have shaped this program, which is why it’s subject to so much criticism from people who had hoped that the program would be designed to keep a much larger fraction of Americans in their homes,” Geithner said.
“There’s no perfect way to strike that balance, but we’ve tried to do something that’s very close to the test you laid out,” he added.
Elizabeth Warren, who chairs the Congressional Oversight Panel where the Treasury chief made the comments, told Reuters after the hearing that she was frustrated by Geithner’s testimony.
Warren repeatedly pressed Geithner for “metrics” on what the Treasury would consider a successful program, but Geithner simply said the administration is trying to help as many families as it can “reasonably” expect to reach.
The Treasury Department on Monday said more people had been kicked out of trial loan modifications than had received permanent modifications.
About 150,000 borrowers who could not prove their income or keep up with the new payments had their modifications canceled in May, bringing the total number of cancellations to 429,696, or just more than one third of the 1.24 million trial modifications started since the program’s inception.
The number of borrowers who have received a permanent loan modification rose to 340,459 in May, about 11 percent of 3.2 million HAMP eligible loans.
“This is bailing out the boat with a teaspoon while it takes on gallons of water,” Warren told Reuters after the hearing.
The Harvard law professor and vocal critic of the administration said the United States will not rebound as long as housing, and therefore construction, stays in crisis.
“I was very surprised. And very frustrated by the notion that the secretary seemed to be saying that a program that helps only a tiny handful of families facing foreclosure is a successful program because, in effect, the rest deserve to lose their homes. I thought that was shocking,” Warren said.
Asked after the hearing to clarify his remarks, Geithner declined to comment.
Reporting by Corbett B. Daly; Editing by Kenneth Barry