Treasury Secretary Timothy Geithner said Thursday the government is trying to keep as many struggling borrowers as possible in their homes in several programs.
Geithner told a congressional oversight panel that although the Treasury Department's ability to spend new bailout funds for the central foreclosure-prevention effort expired in October, it is running other programs for borrowers in certain situations such as those who are unemployed.
Geithner testified that the housing market remains weak. He said the government is putting downward pressure on mortgage rates through agreements with finance companies Fannie Mae and Freddie Mac. The government has been buying securities backed by mortgages that are issued by Fannie and Freddie.
"The American financial system today is in a much stronger position than it was before the crisis," Geithner said.
He said that Treasury's $700 billion rescue program, which came in at the peak of the financial crisis in the fall of 2008, "will rank as one of the most effective crisis-reponse programs ever implemented."
The Congressional Budget Office recently estimated that the program will cost taxpayers about $25 billion. Geithner noted that is far below early estimates that it would cost $350 billion or more. And he suggested it could end up costing even less than $25 billion.
Of the total $700 billion bailout, $75 billion was earmarked for mortgage assistance programs, including the central foreclosure-prevention effort known as the Home Affordable Modification Program, or HAMP.
Treasury had the authority, which expired on Oct. 3, to spend up to $30 billion in taxpayer funds on the HAMP program. Only about $4 billion likely will be spent, according to a report issued Tuesday by the oversight panel.
The report said the two-year-old HAMP program won't reach its original goals and the government should come up with clear, measurable objectives for it. Because Treasury has failed to properly analyze the program, it is nearly impossible to determine whether it is a success, the report said.
The program was designed to help people in financial trouble by lowering their monthly mortgage payments. Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period. The homeowners receive temporary modifications that are supposed to become permanent after borrowers make three payments on time and complete the required paperwork.
Treasury's original goal of preventing 3 million to 4 million foreclosures under the program has been reduced several times. The oversight panel estimates that the program will prevent some 700,000 to 800,000 struggling borrowers from losing their homes -- compared with 8 million to 13 million foreclosures expected by 2012.
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