Federal Home Loan Assistance Program not as effective as hoped

    In Paul Kiel's article "One Obstacle to Obama’s New Plan to Help Homeowners: A Gov’t Regulator"   http://www.propublica.org/article/one-obstacle-to-obamas-new-plan-to-help-homeowners-a-govt-regulator. He states that the administration had expected to reach up to 4-5 million homeowners with Fannie Mae and Freddie Mac guaranteed loans with modifications for underwater property with the historically low interest rate offerings. However, only 838,000 homeowners had refinanced as of June 2011. In an attempt to increase the rate of homeowners who have been assisted by the program, the Obama Administration is suggesting that the Federal Housing Finance Agency (FHFA) back the modifications instead of leaving the risk in the hands of the original lenders.
     The argument for FHFA backing  is that original lenders are reluctant to make loan modifications based on the idea that homeowners who are already in trouble on their notes, will continue to be and more so, with a loan modification. If FHFA takes over the risk from the original lender, then more loan modifications may happen.
     The argument against this is coming from the FHFA director Edward DeMarco himself, and rightly so. Allowing FHFA to guarantee the risks for original lenders would, once again, shift the risk of possible inappropriate lending from the lenders and their mortgage brokers to the taxpayers. This puts too much risk and burden on the taxpayers which the article claims has already reached $141 Billion. There is no mention of whether Fannie Mae and Freddie Mac could continue to pursue lenders in court for reimbursement. Some lenders had agreed to home loans for borrowers who were not qualified for loans under the FHA guidelines, but whose notes were then turned over to Fannie Mae and Freddie Mac. There is at least one lawsuit filed http://stopforeclosurefraud.com/2011/05/03/complaint-u-s-v-deutsche-bank-mortgageit-for-reckless-practices/) on matters such as this to reimburse the taxpayers for payment on risks which should be the original lenders alone. Unless the Administration's suggestion to have FHFA guarantee the loan modifications under FHA guidelines comes with a reservation of rights for the U.S. Government to sue the original lender for recovery on the original note then further guarantees should be granted.