The government's myriad programs to stem foreclosures aren't working nearly as well as the programs that help banks. There's also a lot less money for homeowners. The New York Times reports that the top cause of foreclosure is now unemployment, not risky loans.
Of the $46 billion of bailout money allocated to help homeowners avoid the worst-case scenario, just $1.85 billion has been given out. And after a year, a Treasury Department program targeted at the unemployed that stalls the foreclosure process for three months while out-of-work homeowners look for a new job has only been able to help 7,397 participants. A different plan that pressures banks to modify the terms of bad loans was intended to help 2 to 3 million families has reached just 670,000. There were more than 200,000 foreclosures in April alone. More than 2 million homes are now in the foreclosure process.
As for the lenders, the government was able to help more than 800 banks with more than $430 billion in a matter of months with the Troubled Asset Relief Program, the TARP bailout program. If you count all the different stimulus plans, the government came to the aid of more than 21,000 banks with financial assistance of some sort, according to ProPublica's wonderful bailout data-gathering project.
The lesson is that the government is really good at giving money to banks at risk of collapse. It's just not as adept at helping homeowners on the other end of the housing crisis. Some of that is because banks are way better at applying for the aid. But the real reason is who the money is meant for.
The bulk of that $46 billion in homeowner bailouts is designed to help people with sub-prime loans, but, as the New York Times identified today, that's not the main cause anymore. Bailouts for homeowners aren't much more popular than the bailout for banks,; people don't want their neighbor who borrowed too much to get a free pass while everyone else struggles the old-fashioned way.
There is enough money out there now, it's just that it's not getting spent. That's bad news for President Obama, who will get blamed for allocating $46 billion to people who took out bad loans, but the money isn't even helping anyone now, so there's no tangible nor political gain. Some people certainly should lose their homes if they borrowed more than they could pay back, but as the average job hunt now takes nine months, plans that grant extensions of just three months should match up to reality.
Then we need to ask ourselves the harder questions: Should unemployment be reason enough for the government to help you stay in your home? Or should we look at housing turnover like we did during the bank's failure, and say that the negative impacts on communities—vacant homes, family disruption, lower home values—outweigh the negatives of helping people who make bad decisions?
On the plus side, if this money doesn't get spent, it goes back to the general fund, so that might make debt ceiling debates just a tiny bit easier.