A MEASURE OF CHANGE; Cautious Moves On Foreclosures Haunting Obama
WASHINGTON -- After inheriting the worst economic downturn since the Great Depression, President Obama poured vast amounts of money into efforts to stabilize the financial system, rescue the auto industry and revive the economy.
But he tried to finesse the cleanup of the housing crash, rejecting unpopular proposals for a broad bailout of homeowners facing foreclosure in favor of a limited aid program -- and a bet that a recovering economy would take care of the rest.
During his first two years in office, Mr. Obama and his advisers repeatedly affirmed this carefully calibrated strategy, leaving unspent hundreds of billions of dollars that Congress had allocated to buy mortgage loans, even as millions of people lost their homes and the economic recovery stalled somewhere between crisis and prosperity.
The nation's painfully slow pace of growth is now the primary threat to Mr. Obama's bid for a second term, and some economists and political allies say the cautious response to the housing crisis was the administration's most significant mistake. The bailouts of banks and automakers are now widely regarded as crucial steps in arresting the recession, while the depressed housing market remains a millstone.
''They were not aggressive in taking the steps that could have been taken,'' said Representative Zoe Lofgren, chairwoman of the California Democratic caucus. ''And as a consequence they did not interrupt the catastrophic spiral downward in our economy.''
Mr. Obama insisted the government should help only ''responsible borrowers,'' and his administration offered aid to fewer than half of those facing foreclosure, excluding landlords, owners of big-ticket homes and those judged to have excessive debts.
He decided to rely on mortgage companies to modify unaffordable loans rather than have the government take control by purchasing the loans, the approach advocated by his chief political rivals in the 2008 presidential race, Hillary Rodham Clinton and John McCain.
The administration did not push for legislation to make mortgage companies help borrowers. The financial incentives it offered were often insufficient. And it responded slowly to warnings, including those in letters homeowners sent to Mr. Obama, that companies were not cooperating.
The result was a plan that failed to meet even its own modest goals, data shows. Mr. Obama said in Arizona a few weeks after taking office that the government would help ''as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.'' As of May, 4.3 million people had applied for aid, but only one million had received government-sponsored modifications, according to the most recent data. About a third of those turned away lost their homes, were facing foreclosure or filed for bankruptcy.
In June 2011, Mr. Obama conceded that his administration had not done enough. ''And so,'' he said, ''we're going back to the drawing board.''
The government has since enriched incentives for companies and found new ways to press them to take action. More people are getting help, and the housing market has finally begun to recover, leading some of the president's allies to wonder what might have been.
''If the program they have now had been used at the beginning, it would have had a tremendous impact,'' said John Taylor, chief executive of the National Community Reinvestment Coalition, an umbrella group for housing advocates.
But it is impossible to know whether a more forceful response would have produced better results. Administration officials argue that the missed opportunity was relatively small because mortgage companies were unprepared to help homeowners even if the government had pushed harder -- and the government was unprepared to take the companies' place.
''We operated at the frontier of what was possible,'' Treasury Secretary Timothy F. Geithner, whose department oversaw the housing plan, said in a statement. ''These programs helped millions stay in their homes and millions more refinance to take advantage of lower interest rates.''
The president gets a purple file each day holding 10 letters selected from the thousands that arrive at the White House. Almost as soon as the administration started its housing plan, he began to see complaints.
''I get letters every day,'' Mr. Obama said at a June 2009 news conference, ''from people who say, 'You know, I appreciate that you put out this mortgage program, but the bank is still not letting me modify my mortgage, and I'm about to lose my home.' And then I've got to call my staff and team and find out why isn't it working for these folks, and can we adjust it, can we tweak it, can we make it more aggressive.''
Some of the letters came from people the administration was not trying to help. But in Arizona the president had also made promises that the government was not ready to keep.
Mr. Obama had emphasized that borrowers with financial problems could get mortgage modifications even before missing a payment. But the administration did not define eligibility for that kind of pre-emptive aid, and more than 4,000 people called the Treasury Department during the first year to complain they had been turned away on the grounds they had not missed a payment.