Our Vision

Building an America where freedom, opportunity, prosperity, and civil society flourish.


BannerWingLeft Become a Member Today BannerWingRight


Why Is the Obama Administration Turning to Dodd-Frank Funds for Yet Another Mortgage Bailout?

On July 21, when President Barack Obama signed the Dodd-Frank financial regulation bill, he promised: “There will be no more taxpayer-funded bailouts. Period.” How long will this Obama promise last? Well, The New York Times reports today that  “the Obama administration on Wednesday pumped $3 billion into programs intended to stop the unemployed from losing their homes,” including a program announced by the Department of Housing and Urban Development that “will draw on $1 billion authorized by the new financial overhaul law.” That’s right. The Dodd-Frank “no more taxpayer-funded bailouts forever” bill is not even a month old, and already President Obama is using it to turn your tax dollars into yet another bailout.

And why is the Obama administration turning to Dodd-Frank bailout funds so soon after passage? Because its original mortgage bailout plan, the Home Affordable Modification Program (HAMP), has been a complete failure. Don’t take our word for it. Here are the words of Special Inspector General for the Troubled Asset Relief Program Neil Barofsky:

Unfortunately, HAMP continues to struggle to achieve its original stated objective, to help millions of homeowners avoid foreclosure “by reducing monthly payments to sustainable levels.” Despite a seemingly ever increasing array of HAMP-related initiatives designed to encourage participation in the program, the number of homeowners being helped through permanent modifications remains anemic, with fewer than 400,000 ongoing permanent modificationsand HAMP has not put an appreciable dent in foreclosure filings. Indeed, the number of trial and permanent modifications that have been canceled substantially exceeds the number of homeowners helped through permanent modifications.

The American people are essentially being asked to shoulder an additional $50 billion of national debt without being told, more than 16 months after the programs announcement, how many people Treasury hopes to actually help stay in their homes as a result of these expenditures, how many people are intended to be helped through other subprograms, and how the program is performing against those expectations and goals. Without such clearly defined standards, positive comments regarding the progress or success of HAMP are simply not credible, and the growing public suspicion that the program is an outright failure will continue to spread.

Faced with the utter failure of its TARP funded mortgage bailout, the Obama administration is now turning to the left’s old stand-in for housing market interference: the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. Fannie Mae is now working with the National Council of State Housing Agencies to let people buy houses with little or no down payment just like the GSEs did at the height of the housing bubble. And last week, Freddie Mac was also promoting no-down payment loans, this time through an array of Housing and Urban Development (HUD) programs. All this despite the fact that last week Fannie Mae announced it lost $1.2 billion in the second quarter of this year, and this week Freddie Mac announced a $4.71 billion loss. Both companies were also forced to ask for more Obama bailout cash, including $1.5 billion of your tax dollars for Fannie and another $1.8 billion for Freddie.

No wonder the Dodd-Frank financial regulation bill did nothing about Fannie and Freddie; the Obama administration had every intention of continuing to use them to prop up the housing market. These programs will do nothing but delay the inevitable housing market correction. Instead of letting the market sort out what these homes are really worth, the Obama administration is only prolonging economic hardship by making it harder for new home buyers to afford a moderately priced home and making it harder for those who need to move for work to sell their current homes.

As The Heritage Foundation’s Ron Utt has documented, in 2006 (the most recent year for which data are available for the countries being compared), the homeownership rate in Australia, Canada, Ireland, Spain and the United Kingdom matched or exceeded that in the United States. But none of these nations possess GSEs dedicated to expanding residential mortgage credit. It is far past time to end taxpayer bailouts, and Fannie and Freddie are one of the best places to start.

Other Questions