Examining the Making Home Affordable Program

Published: March 19, 2009

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Ellen Harnick, Senior Policy Counsel, Center for Responsible Lending
Date Filed: March 19, 2009

The Administration's Making Home Affordable Program represents a significant step forward, one that is essential and long overdue. It includes concrete and pragmatic measures to counter the perverse incentives that severed the interests of servicers from those of the borrowers and investors, and led servicers to pursue foreclosure even where the homeowner could afford a loan modification that would produce greater returns for investors as a whole. The program recognizes that, without government action, relying on servicers and investors to voluntarily modify troubled loans does not work.

  • The Program is strong. The Making Home Affordable Program is a comprehensive, well-thought-out and targeted plan with important tools for breaking through some of the main barriers precluding meaningful loan modifications on a scale sufficient to stabilize the housing sector of the economy.
  • Evaluation will be key. The success of the program will ultimately depend upon investors' and loan servicers' willingness and capacity to participate and to modify qualifying loans with the diligence and speed that the times require.
  • Consumer protection compliance is important. Treasury will need to carefully monitor lender and servicer compliance with the program's consumer protection rules and generally ensure that no abuses, such as requiring homeowners to waive existing rights, find their way into the process.
  • Public loan-level reporting will be important. Treasury should also require participating lenders and servicers to provide loan-level detail on the terms of the modifications they offer, both within the plan and outside it, as well as on outcomes for homeowners rejected for modification.
  • The program's plan to deal with second liens is crucial. While many of these mortgages are virtually worthless, it is necessary to offer second lien-holders some incentive to cooperate in the modification of the first mortgage.
  • Judicial modification is an essential part of the Administration plan. By providing an alternative to foreclosure for homeowners whose servicers or lenders will not or cannot agree to economically rational modifications, the court-supervised loan modification provision will both provide an important last resort for homeowners with no other option, and increase the incentives for timely participation by servicers and lenders.
  • We urge Congress to simplify the existing tax rules and to eliminate adverse tax consequence for all mortgage debt that is forgiven.