In his political epitaph as he leaves the program, Barofsky acknowledges in an op-ed in today's NY Times that though it seems almost universally a fact that the extremely controversial legislation has been effective, at least according to most folks in Washington (such as economics writer Robert Samuelson in his most recent column), it actually has failed on some of its lesser known goals, such as protecting home values and preserving homeownership.
Barofsky writes:
These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.
The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.
But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.
Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds. It was only in April of last year, in response to recommendations from our office, that Treasury asked banks to provide that information, well after the largest banks had already repaid their loans. It was therefore no surprise that lending did not increase but rather continued to decline well into the recovery. (In my job as special inspector general I could not bring about the changes I thought were needed — I could only make recommendations to the Treasury Department.)
Meanwhile, the act’s goal of helping struggling homeowners was shelved until February 2009, when the Home Affordable Modification Program was announced with the promise to help up to four million families with mortgage modifications.
That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000). This is the well-chronicled result of the rush to get the program started, major program design flaws like the failure to remedy mortgage servicers’ favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines. As the program flounders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the program’s lifetime.
The St. Pete Times writes this morning that though home prices continue to fall in the Bay area, sales of existing homes increased by 24 percent last month, an increase of 16 percent from a year ago, indicating that prices are "stabilizing." Pardon us if we remain a bit skeptical about that. Don't forget that just a week ago it was reported that the Tampa Bay area ranks 9th in the nation in the length of foreclosures.
In the first half of the aughts (2000-2005), home prices rose dramatically in the U.S., and few places soared higher in property values than in the Tampa Bay area. Although some real estate representatives boasted at the time that home values would only continue to rise, we all know that in fact they had peaked by 2005-2006. The question is, how many years will it take for those values to begin to approximate those dizzying heights?
Not very soon, according to David M Blitzer, the chairman of the Index Committee at Standard & Poor's, who said yesterday that "January brings us weakening home prices with no real hope in sight for the near future."
And Tampa was one of eleven cities that hit a new low price drops in January, along with Miami and one its Southeastern competitors, Charlotte.
One obvious factor for the continuing sluggishness in home prices is the fact there's just too much housing out there, thanks to the foreclosure crises. As the New York Times reports:
Atlanta, Cleveland, Detroit and Las Vegas are now below their average prices of 11 years ago, and Phoenix is nearly there. Charlotte, Chicago, Dallas and Minneapolis are not doing much better. After adjusting for inflation, the struggles in these cities are even more pronounced.
Last night on the PBS NewsHour, Yale University economics professor Robert Shiller of the S&P-Case-Shiller home price index spoke to Ray Suarez about the fact that we're now seeing a second housing slump over the past couple of years.
Meanwhile, Neil Barofsky , the special inspector general for the Troubled Asset Relief Program (TARP) from its creation in 2008 until today, writes about a very interesting aspect of the legislation that could have aided in the housing crises.
