Too Little, Too Late and Too Timid: The Federal Response to the Foreclosure Crisis at the 5-Year Mark
45 Pages Posted: 19 Sep 2011
Date Written: September 19, 2011
The primary federal policy responses to the foreclosure crisis have included programs to reduce foreclosures as well as efforts to mitigate the impacts of foreclosures on neighborhoods and communities. This paper reviews policy responses since 2007 in both of these categories. While there is less information at this point on the outcomes of mitigation polices, the overall federal response is found to be lacking thus far. At least in comparison to the magnitude of the challenges, the programs have been modest in scale. They have also suffered from significant problems of design and implementation. Foreclosure prevention efforts, in particular, are faulted for being too reliant on marginal incentive payments, for failing to include a key policy (bankruptcy modification) that would have encouraged lenders to modify loans more aggressively, and for not sanctioning servicers more aggressively for poor performance or noncompliance. The federal response is also characterized as moving too slowly in some cases and being too captive to the structures and policy preferences of the mortgage and financial services industry.
Keywords: foreclosure, subprime crisis, loan modification, neighborhood stabilization
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