I was out Friday, so I haven't had a chance to write about the Obama administration's new foreclosure prevention efforts (.pdf) announced that day. I am reviewing the details now and have a few observations. As you might expect there are some good ideas and some bad ideas. The temporary assistance for unemployed homeowners is a curious one. It's well-intentioned, but I worry about three problems.
In case you don't know about this new aspect of the foreclosure prevention plan, it seeks to allow homeowners to pay less for three to six months if unemployed. It makes sense to try to prevent foreclosure for the unemployed, since they're the major driver for home defaults now, as the subprime problem is really one of the past.
Most of the foreclosure prevention efforts involve either a carrot or stick. As far as I can see, this aspect involves no carrot -- just a stick. Servicers and lenders don't have any incentive for deferring the payments of unemployed homeowners. But they are required, if participating in HAMP, to make these deferrals.
Treasury has told me in the past that servicers will be fined if they disobey the rules. But I have to imagine that servicers and lenders won't be too eager to do these deferrals. And if HAMP has taught us anything, it's how little progress is made when servicers and lenders aren't eager to do something. So the Treasury had better have a very strong enforcement mechanism in place if it expects this program to work.