WASHINGTON -- Former bank regulator Sheila Bair cringed when President Barack Obama promised at an Arizona high school gymnasium in 2009 that his administration could save millions of homes from foreclosure.
"If lenders and home buyers work together, and the lender agrees to offer rates that the borrower can afford, then we'll make up part of the gap between what the old payments were and what the new payments will be," Obama said, explaining the program with Bair at his side. "And this will enable as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure."
In her new book, "Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself," Bair recounts how her own housing proposals were passed over in favor of a much weaker program, which she knew would never save 4 million homes. Bair served as chairwoman of the Federal Deposit Insurance Corporation until July 2011.
"At the Phoenix announcement, the president was masterful in announcing the program, though I cringed as he threw out what I considered to be wildly inflated numbers on the programs' impact," Bair wrote. "Even with our own, more aggressive proposal, we had estimated the number of successful modifications at 2.1 million tops."
The plan, known officially as the Home Affordable Modification Program, offers struggling homeowners reduced monthly payments through a standardized modification process. The program won't reach its goal of 3 to 4 million restructured loans, but it recently achieved a sadder milestone: 1 million failed modifications. Fewer than 900,000 homeowners are making modified payments, which are typically $500 lower than before the modification.
The huge number of loans that needed to be reworked, combined with burdensome documentation requirements and a lackluster effort on the part of banks' mortgage servicing divisions, guaranteed the program was "doomed to failure," according to Bair.
"What's more, it cheated borrowers," she wrote. "Because Treasury wanted to demonstrate quickly that huge numbers of borrowers were being modified, it let borrowers enter into 'trial modifications' whereby they would start making reduced payments pending completion of all of their paperwork. But many of the borrowers could not provide all of the extensive documentation required by the program, so they would be put into foreclosure even though they had been making timely payments for months!"
Bair's book describes Obama as engaged and knowledgable about housing recovery efforts, but undermined by his aides, particularly Treasury Secretary Tim Geither and former economic adviser Larry Summers.
"HAMP was a program designed to look good in a press release, not to fix the housing market," Bair wrote. "Larry and Tim didn't seem to care about the political beating the president took on the hundreds of billions of dollars thrown at the big-bank bailouts and AIG bonuses, but when it came to home owners, it was a very different story. I don't think helping home owners was ever a priority for them."
Bair's book echoes the criticism in Neil Barofsky's "Bailout," another recent insider account of the Obama administration's housing failures.