Because so much is dependent on how states choose to implement the program, the Treasury offers no estimate of how many borrowers it intends to help. It sure is convenient that it's impossible to measure the success of the program since no expectations have been set. Is 50,000 borrowers helped impressive? How about 500,000 or 5,000,000? There's no target by which to judge performance.
The program may also fail to help the most vulnerable or deserving. Unlike the HUD program, the Treasury's doesn't limit the size of the loan. Instead, it limits the size of the mortgage -- to the GSE conforming limit of $729,750. I don't know about you, but I wouldn't appreciate my taxpayer dollars going towards saving an $800,000 home (with a $700,000 mortgage) from foreclosure, even if the owner is unemployed. You could probably prevent the foreclosures of three $250,000 homes for the price it would cost to save that one. It also doesn't help that there's no clear definition of hardship provided by the Treasury.
Unlike the Treasury program, HUD is a little more specific about eligibility requirements. Participants must:
1) Be at least three months delinquent in their payments and have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within two years;
2) Have a mortgage property that is the principal residence of the borrower, and eligible borrowers may not own a second home;
3) Demonstrate a good payment record prior to the event that produced the reduction of income.
The first point is a little bit concerning. Why should delinquency matter? Imagine a situation where you have two unemployed homeowners with identical underwater mortgages and savings. One does not feel he should spend his precious savings on a house that is worth less than his mortgage balance, so he's delinquent and preparing to strategically default. The other believes he should live up to his obligations and has been depleting his savings to stay current on his payments. Why is the first guy eligible for the program, but not the second?
Another troubling aspect of the program is that the "loan." This essentially creates negative amortization, increasing the borrower's total debt. Only a small fraction of the loan will be principal paid down on the mortgage, while the rest will be interest, insurance, and taxes -- which will add to his or her aggregate debt. In other words, in order to be able to pay the new debt load, a person will have to get a job paying greater income than they had before their job loss. That result isn't very common.
But perhaps this worry is misguided. After all, the loan is also "non-recourse," which means it probably isn't much of a loan at all, but a gift. If you got the maximum limit of $50,000, why pay back Uncle Sam? The government won't come after you, and that's an awful lot of money to owe. It might ding your credit a bit, but will defaulting on the loan really do $50,000 worth of damage to your credit? Probably not. You can expect the government to incur pretty big losses on this program. Many people will simply not pay back their loans, and others might not be able to since their debt burden is higher or they ultimately foreclose anyway.