Update on the president’s foreclosure relief plan: Still no relief. White House spin and credulous headlines notwithstanding, the Treasury Department’s own numbers make it clear that the modest program is no match for the extraordinary problem. Why? Because if more than two years of timid, piecemeal federal initiatives have proved anything, it’s that banks cannot and will not fix this problem voluntarily. No amount of corporate welfare will change that fact.

The White House plan, launched in March, hands out $75 billion in incentives to encourage mortgage servicers—which banks and investors hire to manage loans—to work with struggling borrowers rather than rush to foreclosure. Treasury Assistant Secretary Michael Barr touted the results Wednesday in testimony to Rep. Barney Frank’s House Financial Services Committee. Barr claimed the data shows that the incentives are spurring progress, that the program’s on pace to meet its goals and that it “has already been more successful than any previous similar program in modifying mortgages for at risk borrowers.”

OK, sure. But that’s not saying much. The numbers sound exciting in absolute terms—360,165 modifications begun as of the end of August and on track to help 3 to 4 million borrowers over three years—but they’re dismal when considered as a percentage of the need. In July alone, according to RealtyTrac, we logged 360,149 foreclosures. Yup, one month’s foreclosures wiped out the cumulative progress of the administration’s program. And it’ll only get worse from here: The July foreclosure tally is a 7 percent jump over the previous month and a 32 percent increase from a year ago. Worse, joblessness appears to be driving today’s foreclosures, which means the downward slope will get steeper still.

Since summer 2007, the feds have insisted that servicers need only greater incentives to choose loan modifications over foreclosure. That approach has plainly failed, largely because the mega-servicers who manage most mortgages are built on low-cost, high volume business models that can’t accommodate the work sustainable modifications demand. Servicing arms of Bank of America, Wells Fargo and Chase control more than half of the market. And their performances in Obama’s program have been particularly dismal. Bank of America has modified just 7 percent of its eligible loans. Wells Fargo has modified just 11 percent. Chase is doing far better, at 25 percent. (All of this is an improvement over July’s data, at least.)

All of this has prompted several key Democrats to reengage the campaign to give borrowers more leverage. Back in the spring, the Senate rejected a proposal to allow bankruptcy judges to modify mortgages on primary residences—since judges can already modify loans for, say, vacation homes and boats. Mike Lillis at the Washington Independent reports that Frank and Sen. Dick Durbin, who led the first push for bankruptcy reform, are bringing the idea back:

Frank said Wednesday that he’s “disappointed at the pace” of the White House initiative. Considering the reluctance of mortgage servicers to modify loans voluntarily, he added, mortgage bankruptcy reform “has become relevant.”

“The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified,” Frank said.


Frank is threatening to add the measure to a broader package of regulatory reforms. Problem is, once again, the senate. And since the White House failed to fight for the idea the first time around, it isn’t likely to fight for it now.

That’s the broader concern for all of today’s reform efforts. The Obama administration has been insistently deferential to corporate interests across the board. The health care battle, for instance, is now unfolding along the same lines as the foreclosure fight—we’re heading toward a bill that will hand private insurers a huge new market with a few new rules, while simply hoping they’ll voluntarily fix the industry’s core problems. They won’t, of course, any more than banks have voluntarily fixed foreclosures. That’s no matter to Obama’s political fate—he and the Democrats get to talk about change without actually upsetting the powers that be. Fine. But it’s not reform.