The housing market has consistently been underwhelmed by the government's foreclosure-prevention efforts, and yet officials keep setting us up for disappointment.
This week's rosy-scenario artist is Edward J. DeMarco, acting director of the Federal Housing Finance Agency. In announcing a tweak to the Home Affordable Refinance Program, known as HARP, DeMarco said it would be "bringing a measure of stability to housing markets."
It's hard to see how. The changes to HARP are welcome and will help a few people, but they won't put much of a dent in the foreclosure statistics, nor will they put a floor under falling house prices.
When President Barack Obama launched HARP in 2009, he said it would help 4 to 5 million people stay in their homes. Three and a half years later, the Home Affordable Refinance Program has reduced the payments on only 894,000 mortgages.
The FHFA has now made refinancing possible for people who owe more money than their houses are worth. By the end of 2013, the agency says, the number of homeowners participating in HARP could double.
That's hardly enough to create a big new stimulus program, which is a label that some optimists are applying to HARP.
"In terms of its impact on the economy or the housing market, I don't think it will be very noticeable," says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
Using the government's own figures, perhaps the program can help 500,000 people a year. Each of them will be paying a lower interest rate, which should leave more money to spend on things such as cars, vacations and restaurant meals.
If each of those homeowners saves $4,000 a year -- probably an optimistic assumption -- their newfound spending power would amount to $2 billion, which is hardly noticeable in a $15 trillion economy.
The rules of HARP even give people an incentive to forgo some of those savings. You can avoid certain fees if you agree to shorten the term of your mortgage -- but paying off the mortgage faster means higher monthly payments.
"The interest savings will be very small," says Joel Prakken, chairman of Macroeconomic Advisers in Clayton. "Sure, it's helpful for the people who use it, and there's nothing wrong with doing it, but this is not going to be a jump-start for the economy."
What's more, the government's hopes for HARP may still be too high. You only qualify if your mortgage is backed by Fannie Mae or Freddie Mac and you haven't missed a payment in the past six months.
Chris Krehmeyer, president of Beyond Housing, says the program won't help most of the people that visit his agency seeking help with their mortgages. "Typically, the folks that we're seeing have other problems that HARP isn't even trying to address," he said. "They've lost their jobs, they've blown their savings, and we're scrambling to try to keep them from losing their houses."
Krehmeyer says the government has "overreached every time" with its estimates of how many people would be helped by its mortgage-assistance programs. Many people who could be helped by the new rules, he added, won't even hear about HARP or won't be able to navigate the red tape.
In short, the new and improved HARP is much like the old HARP. It's a program that will help a few people, but it won't cure what ails the housing market or the economy.
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