Too Little, Too Late and Too Timid: The Federal Response to the Foreclosure Crisis at the 5-Year Mark

The primary federal policy responses to the foreclosure crisis, thus far, include programs to reduce foreclosures and efforts to mitigate the impacts of foreclosures on communities. This paper reviews policy responses between 2007 and 2012. While there is less information at this point on the outcomes of mitigation polices, the overall federal response is thus far lacking. The programs pale in comparison with the challenges they are intended to solve and suffer from other program design and implementation problems. Foreclosure prevention efforts, in particular, are faulted for being too reliant on marginal incentive payments, for failing to include a key policy, bankruptcy modification, which would have encouraged lenders to modify loans more aggressively, and for not sanctioning servicers more aggressively for poor performance and/or noncompliance. The overall federal response is also characterized as moving too slowly in some cases and being too captive to the policy preferences of the financial services industry.