MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. As housing prices continue to fall and foreclosures hit cities once untouched by the extremes of the housing crisis, it's probably a good moment to stop and take a look at the government programs meant to address the mortgage crisis. They're all part of the Troubled Asset Relief Program or TARP.

MR. KOJO NNAMDINeal Barofsky, the outgoing watchdog for the program, noted that the initial bailout did advert a potential disaster, the collapse of the country's major financial institutions. But when it came to helping homeowners and stemming the tide of foreclosures, he did not mince words. A colossal failure, was how he phrased it. And frankly, it's difficult to find many people who would disagree with that assessment of the program's so-called main street goals.

MR. KOJO NNAMDIThat's not good news for the millions of homeowners struggling to save their homes, nor is the budget-slashing mood in Congress, which means more help is unlikely to be on any legislative agenda. Joining us in studio to discuss this is Bill Longbrake, executive in residence at the Center for Financial Policy at the University of Maryland's Smith School of Business.

MR. KOJO NNAMDIBill Longbrake, thank you for joining us.

MR. BILL LONGBRAKEThank you.

NNAMDIAlso in studio with us is Joe Schatz. He is a senior writer with "Congressional Quarterly." He covers economic policy and politics on Capitol Hill. Joe Schatz, thank you for joining us.

MR. JOE SCHATZThanks very much for having me.

NNAMDIJoining us from studios at WBUR in Boston is John Taylor, executive director of the National Community Reinvestment Collation. John Taylor, good to have you abroad.

MR. JOHN TAYLORNice to be here, Kojo.

NNAMDIWe're taking your questions at 800-433-8850, also your comments. Have you or someone else you know dealt personally with a foreclosure? What was the experience? 800-433-8850. Joe Schatz, allow me to start with you. Along with several other programs aimed at helping the housing market, the GOP-led House voted last week to end the Home Affordable Modification Program or HAMP.

NNAMDIIt might be grandstanding on the part of House Republicans, but wasn't loan modification supposed to be one of the main street goals of the bailout?

SCHATZRight, that was one of the -- when the Bush Administration first came to Congress to get the big bailout, TARP, one of the main ways it helped get support in Congress was by clearing this element of -- that it would help homeowners modify their mortgages. Lawmakers of both parties have been disappointed with how that's worked out over the past two years.

SCHATZThe Treasury Department says that basically it's been difficult to get mortgage servers and companies and banks to actually modify those loans. Barofsky and others have said the Treasury hasn't done enough. Now, it's sort of caught in this battle over spending. Republicans just want to shut it down.

SCHATZDemocrats -- we have a lot of Democrats saying don't end it, mend it, proposing ways to make -- put a few more teeth in it, make it more effective. But realistically, right now, in the current environment, you're unlikely to -- you're unlikely to see it shut down, but you're really also unlikely to see any real additions to it or improvements to it.

NNAMDIBill, help for homeowners was something Congress pushed for two years. What's changed?

LONGBRAKEWell, you know that only 400 applications have actually been approved under that program? That was a program that was structured under the Federal Housing Administration, FHA, and the problem with the program, the reason that it hasn't been very effective is that it had so many constraints in it that simply people that would apply would not qualify.

NNAMDIJohn Taylor, how was the help for homeowners, the making homes affordable plan supposed to work?

TAYLORWell, it was supposed to create a set of criteria in which families facing foreclosure would be able to come in and have their loans modified. With these new underwriting standards, that would guarantee long-term performance that we wouldn't see these people in foreclosure again. And unfortunately, I think the criteria that worked against the program all along was the voluntary nature of it.

TAYLORIt required lenders and their services to be willing to participate in the program. I think the design of the program was good in the sense that, you know, if someone got a modification on their HAMP, they probably would remain in their home, assuming they didn't lose their job, for the duration of their mortgage.

TAYLORBut unfortunately, there just wasn't enough, whether it's bully pulpit or enough arm-twisting, to get enough lenders and services to corporate so that the numbers wouldn't be -- so that the numbers would've been good enough so that someone like a Barofsky and others wouldn't call it a colossal failure.

NNAMDIWell, John, how many homeowners was it expected to help, as opposed to the 400 loan modifications that were actually made?

TAYLORWell, the original predications are in the millions and then that got lowered. I think the most recent figure is somewhere between 700,000 to 800,000 of which they've been responsible for about 500,000 modifications, permanent modifications. Problem with that is, we're looking at anywhere from 4 to 6 million folks who have been facing foreclosure. And depending on who you listen to, another 8 to 11 million more foreclosures coming down the pipeline.

TAYLORI was last week talking to someone in the mortgage insurance industry who has a pretty good handle on foreclosures. They're predicting in 2011 as much as 3 million foreclosures. So getting 500,000 is simply not good enough, I think, by anybody's standards, even the administration is not happy.

NNAMDIBill Longbrake?

LONGBRAKEWell, if I could just add a few details here. First of all, there are two different programs. The help for homeowners was actually a legislated program that was put through the FHA. The Home Affordable Mortgage Program was actually something that came out of the TARP legislation. It was designed by the Obama Administration.

LONGBRAKEThe 4 million borrowers that it promised to help was what President Obama announced in March of 2009. And so far, as John pointed out, actually Treasury put out precise numbers last Friday, through January 31st of this year, it had helped approximately 630,000. So that's way, way short of the 4 million.

LONGBRAKESome of the reasons that it has not come anywhere near the expectations has to do also, not just with what John Taylor had to say about the reluctance of servicers and so forth to hustle and do what they could to make sure the modifications were performed, but also had to do with the original program, the Home Affordable Mortgage Program was designed for a problem that passed away.

LONGBRAKEThe problem was an increase in mortgage rates and the problem very quickly switched over to people losing jobs and not having income. So they did not qualify for some of the standards that were in the program.

NNAMDIWould you say that what has been described as the failure of the Home Affordable Modification Program, also had to do with the fact that it was voluntary? Do you think that making it voluntary was what some would consider a fatal flaw?

LONGBRAKEWell, you could if you want to dig into history and look at what happened back in the 1930s. And there was a program that the government entered into at that time when there was a very similar, very bad mortgage problem across the country that was not voluntary and that was regarded by many as a very successful program.

LONGBRAKESo whenever you have a program that's voluntary versus involuntary, there's always the opportunity for those that don't want to play or don't have that incentive for the voluntary program to do it less well than an involuntary one.

NNAMDIWe're talking...

TAYLORActually, may I...

NNAMDIPlease go ahead, John Taylor.

TAYLORSo, Bill's right. I mean, when FDR was confronted with this problem, with massive amounts of foreclosures -- it's very interesting. I just the other day got on YouTube. I looked a clip, one of those fireside chats that the president gave in those days and it was just amazing to listen to this president get on television in front of a big mic, say, look, two things, I'm going to have moratorium on foreclosures.

TAYLORThis is something this president and the previous president did not support and -- I'm going to create this fund, that Bill just referenced, that's going to assist homeowners to stay in their homes. They really went out of their way to try to prevent as many people who were still working to be able to continue to be homeowners as possible.

TAYLORAnd the problem is because we didn't do that, because we -- because the nature of the program was to address a lot of the unsavory kinds of loans that people got, after a while, because we didn't -- we weren't very effective in the addressing enough those loans, it contributed to the economic decline of our country to the point where the number one reason for why people went into foreclosure get displaced from just having bad loans that were inappropriate to losing their job because now the economy had really soured.

TAYLORSo it's become a tougher problem, there's no question about it, because we didn't respond in full under Paulson and Bush and then under Geithner and Obama as we should have.

NNAMDIWell, Bill Longbrake, you made the point that in the middle of 2008, in the fall of 2008, that we were looking at the sub-prime mortgage crisis and that now the nature of the problem has changed, as John Taylor was implying. That right now, we're looking at falling prices and unemployment as the big issues.

LONGBRAKEThat's absolutely what the problem is. And the HAM program was never designed for that particular problem. So you have to have 31 percent of your income as qualifying for HAM mortgage and if you don't, then you get rejected.

NNAMDILet's understand where we are right now. What does the housing market look like right now?

LONGBRAKEThe housing market is quite dismal. Every single statistic housing starts, existing homes sales is at the low level in 40 to 50 years or since statistics have been collected. And, as you pointed out at the beginning of the show, Kojo, home prices are falling. The Case Shiller index just came out last week for the most recent month and it showed another decline. And we're actually back on home prices to the bottoms that we had a year ago and most of the knowledgeable forecasters expect another 5 percent or maybe even greater decline in prices from here.

NNAMDIWell, foreclosures actually fell in February, it's my understanding, but that's because banks are under scrutiny because of sloppy paperwork and maybe worse?

LONGBRAKEMaybe worse. The foreclosures are falling simply because the banks no longer know exactly what to do. It's becoming more difficult actually to modify loans with falling home prices and the easy ones have been modified at this point.

NNAMDIThere was a program that Congress passed last year, wasn't there, to address foreclosure issues specifically for people who are facing unemployment in certain hard-hit states, but it's very limited. Can you tell us about that?

LONGBRAKEIt's called the Hardest Hit Program. It's for 31 states and so it's not all the states. It's the states with the highest unemployment and it only has $1 billion allocated to it. I mean, Joe, you might be able to answer that one more specifically. But the $1 billion, if you do the math -- and the idea was you're going to actually give to the homeowners a amount of money to reduce their principle and it works out to about 25,000, maybe a few more, maybe as many as 50,000 homeowners who would be helped through that program. So that's nothing close to the 4 million we're talking about.

NNAMDIWe have a number of callers on the line, but first, I'd like to take a short break. If you have called, we will get to your call. We still have a few lines open, 800-433-8850. As TARP is winding down, do you think we need a new program to help homeowners facing foreclosure? Call us, 800-433-8850 or you can go to our website, kojoshow.org, ask a question or make a comment there. Send us a tweet at kojoshow or e-mail at kojo@wamu.org. I'm Kojo Nnamdi.

NNAMDIWelcome back to our conversation assessing the housing bailout. We're talking with Joe Schatz. He's a senior writer with Congressional Quarterly. He covers economic policy and politics on Capitol Hill. Bill Longbrake is the executive in residence at the Center for Financial Policy at the University of Maryland's Smith School of Business. He's been involved in the banking industry for over 30 years along with involvement with FDIC. And John Taylor joins us from studios in Boston. He is the executive director of the National Community Reinvestment Coalition. John Taylor, another criticism of the bailout was that banks did not see lending as a priority. Rather, most saw the bailout funds as a no-strings-attached deal.

TAYLORYeah, I mean, this is, I think, in hindsight, something the administration would've probably done over. That -- they assumed that by keeping these banks afloat and not allowing them to fail -- and obviously that was the perception of both the Bush Administration and the Obama Administration, that this was something we absolutely had to do for fear of going into a depression, not just a recession.

TAYLORBut I think the assumption was that because of this support, that the banks would turn around and be much more aggressive in dealing with the foreclosures. And now, of course, as Bill has pointed out, I think it's gotten more complex given what's happened to the state of the economy. So it -- hindsight being 20/20 I think there would've been more caveats about how aggressive they needed to be in addressing the foreclosures.

NNAMDIJoe, on the other hand, the bailout isn't looking so bad in terms of costs to the taxpayers. Treasury right now is patting itself on the back that except for the housing programs, it looks as though TARP has actually made around $23 billion.

SCHATZRight, exactly. Treasury is saying about 25 billion and estimates from the congressional budget office and others make it more about breaking even. I mean, it goes with the argument that Treasury makes and that a lot of defenders of the program make that from the big picture, as you mentioned -- form the big picture perspective, it did -- TARP did work in stabilizing the economy at a fairly low long-term cost to the Treasury. And that, you know, without it, things would be a lot worse. And banks, there'd be a whole different situation with banks.

SCHATZAnd I think the -- that's the argument you hear from a lot of folks who still defend it. That's a dwindling group. I mean, people have been -- lawmakers have been running from TARP -- from TARP, not on TARP for, you know, the last two years. And it's hard to find folks who will publicly, you know, say they agree with it. But a lot of economists seem to agree as well that over -- from a big picture perspective, it did accomplish what -- the main goal that they were trying to achieve.

NNAMDII'd like to pursue that point for a second so if you call, stay on the line. We will get to your call. But the lines are filled so if you still would like to communicate with us, go to our website, kojoshow.org. Join the conversation there. John Taylor, just to clarify, the money that the Treasury made on the bailout was not in the whole modification area of TARP. That actually did cost money, right?

TAYLORWell, they actually allocated for the HAMP program you're referring to, Kojo?

NNAMDIYes.

TAYLORThey allocated, I think it was, 29 billion. They used all of 1 billion in the program so they actually still have 28 billion sitting there. And let me just say, as far as the bailout is concerned, looking strictly at what Treasury did, I think Joe's comments are accurate. But remember, there's also the Fed window and the guarantees that the government through the Fed have -- and through the FDIC have put forward that actually create nearly $11 trillion worth of obligation on the part of the government in one form or the other.

TAYLORAnd it remains to be seen how all that is going to play out. So it's -- in terms of specifically the funds relating to TARP and the banks paying it back, I think at an interest rate of 10 percent, that, by almost anyone's standards, has gone well for Treasury. But there's a lot more investment on the part of the American public than just that.

NNAMDIBill Longbrake, the money that Treasury made on the bailout, how much of those gains are on paper and where does that money actually go?

LONGBRAKEActually, most of the money is not on paper because most of the financial institutions that got TARP money back in 2008 and early 2009 have repaid it, and they've repaid the preferred dividends. And actually Treasury had warrants and they've paid that. So most of it has been already paid back and is cash in the Treasury.

NNAMDIOn to the telephones now, starting with Ann in Falls Church, Va. Ann, you're on the air. Go ahead, please.

ANNHi, thank you. I actually had some experience -- are you there?

NNAMDIYes, we're hearing you clearly.

ANNYeah, I applied for a TARP loan modification. It was a long time -- I'll try and make it really short. I kept my house after a divorce so I had a lot of equity in it, started a small business, have two kids, single mom. But the mortgage payments were really eating me alive, but I never missed one. Heard about the HAMP program, realized I qualified perfectly. I had went to my lender, who I had already refinanced twice with since the -- you know, since I'd been divorced, so they knew who I was. And I was told that I qualified. And, great. And I made my three trial payments, which were greatly reduced. It was really gonna make the difference.

ANNAnd then, you know, they kept going, well, we don't have it quite through yet. There were a couple of small glitches, and I was encouraged on the phone not to make any more mortgage payments, that it would be wrapped in when it reclosed. And I was strung along for ten months this way, okay, in which, you know, I had made my three payments. I kept calling -- I called every month. I even have the names of people that I talked to and everything, very nice and helpful. Then a very happy thing happened and I became engaged to be married and was just going to sell my house and buy another one.

ANNAnd at the closing settlement, all of a sudden, there's $26,000 in accrued interest showing up there that I owed the servicer. And it turned from a very pleasant relationship over, you know, 14 months to a really horrible one when, you know, I could cover it. But I said to the guy who got on the phone and was just horrific to me, I said, well, wait a minute. You've been telling me all along -- what if I wasn't buying a new house? What if you just came to me and said, oh, we made a mistake and you owe us a year of back interest, even though your people told me not to -- to pay down other debt, which I did. And he said, I quote, "We would have foreclosed forthwith."

NNAMDIWell, I'm glad you shared that experience, Ann, because I'm going to ask our panel to respond and compare it to another experience, this by way of an e-mail from Cynthia in Jacksonville, Fla. "I'm a former homeowner in Jacksonville, Fla. I and my two middle school-age boys were evicted from our home of ten years on March 21 of this year. I was granted a mortgage modification in 2008. Wells Fargo then revoked the modification after I'd made payments four months later.

NNAMDII spent two years seeking Wells Fargo reinstate the modification and seeking justification through the Florida courts. It's my opinion that in Florida the big banks, foreclosure mills, lawyers and the system are in corrupt cooperation to make sure that homeowners are never in possession of their homes." I don't know. I'd like to hear what that story says -- or those stories say to you, John Taylor.

TAYLORWell, I don't know the specifics of Cynthia's case, as it relates to Wells Fargo, and whether they were the servicer in that case or they -- actually it was their mortgage, because it makes a difference. But let me say, the story from her and the story from Ann is not uncommon. We run a national foreclosure prevention program and then we fund a number of our members through NCRC, the National Community Reinvestment Coalition where I work to also counsel and prevent and help people to avoid foreclosures.

TAYLORAnd I'll tell you, Kojo, we could spend the rest of this year, if you were on 24/7, talking about these stories that were very similar to the experiences of Ann and Cynthia, where they tried to go through the process and they just kept running into hurdles and hurdles. And in the end, the process didn't treat them very well. I think there were a lot of tweaks to it. There was a lot of folks in Washington, and Bill was very engaged in this, so he can speak to this as well, who were constantly trying to improve the program. But in the end, it came down to the incentive for these services and the holders of these mortgages, their willingness to be able to modify a loan as opposed to head towards foreclosure.

TAYLOROne of the weird things we have in our country right now is the home is not something that's protected in bankruptcy. If you have a ski chalet, a summer home, a winter home, a yacht, all those things are, in fact, protected in bankruptcy, but your home is not. And there was a real effort to try to get Congress to pass that legislation so that it really would bring all the parties to the table in the event of a purposeful closure. And fourth, some decision rather than simply go to its foreclosure and sell the home.

TAYLORWhat we found is a lot of times they'll actually -- the investor and the bank will actually lose more money going through the foreclosure process than if they had worked out a modification or a short sale or something that did less damage to the homeowner, but also cost them less. And it's been bewildering to us that there wasn't more of this done. And now, as we keep saying, what's compounded the problem now is unemployment has become the number one reason for folks heading into foreclosure. And this is a much more complex thing to work through.

NNAMDIBefore I go to Bill Longbrake, like many of our listeners, I'm saying, back up a second. What do you mean my home is not protected in bankruptcy protection, but my winter chalet or my yacht might be protected?

TAYLORYeah, that's the way it is. It wasn't always that way. It got changed a couple of decades back, but it's unbelievable that that's the case. But, you know, unfortunately, this Congress and the previous one or two did not see fit to pass bankruptcy reform. It came close and there was a lot of push to try to pass it, but it failed, didn't get the votes.

NNAMDIBill Longbrake here to comment on the -- Ann and Cynthia's situations.

LONGBRAKEWell, let me make a couple of points here. On Ann's situation I can identify with that very personally. The woman who cuts my hair went through an exact story very similar to the one that Ann described. And every month I got the latest chapter and the agony. And first, there was euphoria, oh, they're going to do it. And then -- and she was counseled also to not make the payments. Fortunately, she continued to make the payments.

LONGBRAKEAfter about a year's period of time, the institution sold her loan to another servicer and the next servicer kept billing her the same payments. And she called them up and said, wait a moment now. This loan has been modified and they said no, it hasn't been. But the second servicer said, we will take care of it and they did. And so within a month's time, she actually, after a year's waiting, it was all resolved.

LONGBRAKEBut there are thousands and thousands of these kinds of stories out there. Ann and Cynthia are certainly not alone, and that's very unfortunate. All me to make my second point, and I'll do it very quickly, Kojo.

NNAMDISure.

LONGBRAKEThe second point is that I think many of the listeners are probably well aware that there's been effort going on nationally to come up with national servicing standards. And then, there is, in process right , a proposed settlement that the state attorney generals and the bank regulatory agencies are putting together. It is rumored that maybe as early as this week, seize and desist orders will be imposed on some of the largest banks to require them to adhere to sound servicing standards.

NNAMDIJoe, as we mentioned earlier, the budget fight is heating up in Congress. A few months ago, Democrats were talking about adding stimulus money, but we don't seem to be hearing that anymore.

SCHATZNo, no. The conversation about the budget has shifted really dramatically in the last four or five months. As you mentioned, you know, there were still calls for additional infrastructure, energy, education spending a few months ago. And that's what President Obama wants in his budget. But the Republican-led House has shifted the conversation in a direction where now they're talking about how much they're going to cut. And they have centered around about $33 billion in discretionary spending cuts and they're about to propose tomorrow a new budget that would start cutting on the mandatory side of the Federal budget.

SCHATZAnd as a result, you see a lot of these -- even though members of Congress are getting calls like these about foreclosures from their constituents, you see a situation where everything is sort of viewed through this -- through the budgetary prism right now. And, as I mentioned, the house -- the Republican-led House voted last week to end the HAMP, the Home -- the Affordable Modification Program. And you have -- so the split -- the partisan split in Congress right now means that anything that costs money isn't doing very well right now.

NNAMDIHere is Paul in Fairfax, Va. Paul, your turn.

PAULYeah, good afternoon, Kojo.

NNAMDIGood afternoon.

PAULOkay. My original loan was at IndyMac and they were bought out by One West.

NNAMDIYes.

PAULLast year, with the help of NACA, you know, they modified my mortgage. Now we received a letter from the vice-president that he has no paperwork. But we kept the original paperwork and we made a photocopy, we faxed it to Mr. Frank Ward, the Congressman...

NNAMDIYes.

PAUL...and also to the vice-president of IndyMac. What I'd like to know is, if IndyMac is in the middle, how can I remove them (unintelligible) ?

NNAMDIBill Longbrake?

LONGBRAKEWell, maybe John Taylor could answer that 'cause...

NNAMDIJohn Taylor then.

LONGBRAKE...that's what John does.

NNAMDIJohn, removing the middleman.

TAYLORWell, you know, whoever owns that loan, I guess, you would -- and Bill, I would've said Bill could answer that one. I think you're going to need to -- I think you're going to need to either have it refinanced or purchased by somebody else because they have your mortgage. They're the folks now. I don't see that you -- absent doing one of those two things -- Bill, I don't know, what do you think?

LONGBRAKEWell, when the paperwork gets lost -- it's a good thing, Paul, that you have it still...

TAYLORYeah.

LONGBRAKEAll right. That's very important. That's a starting point. But there are -- the reason I kind of kicked it over to you, John, is that I guess my recommendation is that he would talk to a HUD certified counselor and get --

TAYLOROh, yeah.

LONGBRAKE...some guidance that way.

NNAMDIPaul...

TAYLORWell, he's working with NACA, which is a (unintelligible) ...

LONGBRAKEOh, NACA. Yeah, well, then NACA is actually a very capable organization.

NNAMDIPaul, I'm going to put you on hold for a second so that we can all hear and compare your story with Harriet in Baltimore, Md. who's probably saying, me next, me next. Harriet, you're on the air now. Go ahead, please.

HARRIETHi, thank you. I heard on either this station or the one in Baltimore, the public radio station, that many, many, many people have complained that they lost the -- the bank told them they'd lost their paperwork. They had copies and it didn't do them any good. And I would like to say that what is going on, nobody has used the word criminal. These are crimes by these mortgage holders and these banks. And that's -- and I also heard that they think that Timothy did not go after the banks. He did not do it.

NNAMDITimothy Geithner, the Treasury Secretary. Okay.

HARRIETExcuse me.

NNAMDII had to explain who Timothy is.

HARRIETWell, I think everybody knows...

NNAMDIWell...

HARRIET...the Secretary of the Treasury -- the Secretary of the Treasury who's watching out for the banks.

NNAMDIHarriet...

HARRIETAnd that's been our problem. And I also want to make one more comment.

NNAMDISure.

HARRIETThey were trying to avoid, they said, a depression. Yes. Many people in this country are in depression. They are suffering. And we better look in the mirror and we'd better do something because the people are suffering. We will not have any trace of a democracy in this country...

NNAMDIThank you very much.

HARRIET...if this kind of behavior continues.

NNAMDIHarriet...

HARRIETThank you for listening. Thank you for (unintelligible) .

NNAMDI...Harriet, thank you very much for your call. Bill Longbrake, Harriet and Paul and others seem to feel that it's not credible that there can be a virtual epidemic of banks losing papers.

LONGBRAKEWell, it is a very serious problem, and unfortunately, it's a very real one, too. The banks simply were never staffed to handle the deluge of problem loans and they didn't react on a timely basis. They didn't really totally understand the significance. People in the servicing area did, but they're not the ones that make the decision on making resources. Now, I want to add a piece of information here.

LONGBRAKEI happen to be chairman of a not-for-profit organization called Hope Loan Port. And what Hope Loan Port does is it works with HUD certified counselors. Those counselors talk to people like Harriet and Paul and Ann and Cynthia to help them put the information into an electronic record. So this is a web-enabled file -- by the way, I would add that NACA does the same kind of thing so that all the information is an electronic record, no paperwork. When the file is completed, it goes to the servicer. There is total accountability for the record. It can never get lost.

NNAMDIPaul, thank you very much for your call and for sharing that experience with us.

TAYLORKojo...

PAULYes, thank you very much.

NNAMDIYes, John Taylor?

TAYLORYeah. So the losing paper issue, it's important to understand how this all happened. So -- and I'll just be very brief about this. So Wall Street created this pipeline in which they had -- they were so flush with investor money from big governments, from big pension funds and so on, that they exhausted the amount of mortgage product that they could invest in. And so they sent the word down the pipeline, just make any loans you can and make them fast. And that's what happened.

TAYLORThey built such an infrastructure in which, you know, they threw out the window a lot of the traditional underwriting criteria that kept our financial services sector very clean, very solid, very profitable, very responsible. You can throw it out the window. But what I also could throw out the window is the whole processing, because as Bill said, they didn't even have the infrastructure in place where they could handle the volume of the stuff so that they could actually copy all the documents, record them, place them in the right place so that when they needed them, and then when they sold the loans, it could go -- moved up the pipeline with those who purchased it. So that was the problem here.

NNAMDIGot to take a short break, but when we come back, I'd like to talk about oversight, about why all of this was allowed to occur. And if you have called, stay on the line. We will get to your call. We're discussing the housing bailout. The number is 800-433-8850, or you can go to our website, kojoshow.org, send us a tweet @kojoshow, or send e-mail to kojo@wamu.org. Does the fact that the government will likely make a profit on the bailout change your view of it? 800-433-8850. I'm Kojo Nnamdi.

NNAMDIWelcome back to our conversation assessing the housing bailout with Joe Schatz, senior writer with Congressional Quarterly. He covers economic policy and politics on Capitol Hill. John Taylor is the executive director of the National Community Reinvestment Coalition, and Bill Longbrake is the executive in residence at the Center for Financial Policy at the University of Maryland's Smith School of Business.

NNAMDIBill Longbrake, oversight was also an issue. Some say banks have not necessarily used the funds for the intended purposes to help homeowners, and there are a number of ongoing fraud investigations.

LONGBRAKEWell, first of all, if you talk about the HAMP program, the funds are not paid to the banks until they do certain things, and they have to show documentation that they have completed that, and those are subject to audit. The fraud actually I think has to do not with the government programs, but with other types of activities that the banks have been doing in the larger arena of mortgage modifications.

NNAMDIJohn Taylor?

TAYLORYeah. I think Bill's right. I -- I don't think you can fault the HAMP program on that. It's pretty accountable. But I think the bigger issue is the issue that Harriet and Paul raised, in particular, your last caller, Harriet. Is the commitment to homeowners was from Secretary Geithner and from Secretary Paulson, simply wasn't at the same level as the commitment was to stabilizing the financial services sector. And I think that was a bad call on both their parts.

TAYLORAnd frankly, Geithner has repeatedly been heard talking about the moral hazard associated with helping homeowners who maybe don't deserve to be helped, and yet, you know, you look at a lot of the financial institutions who were kept afloat and loaned money. Many of them were directly involved in this calamity and in creating the problem, and there doesn't seem to be the same requisite level of concern about the moral hazard and helping those who brought us to this -- to this mess to begin with.

TAYLORSo I -- I think -- I mean, and you -- you look at the help for homeowners that the Congress passed in which Bill referenced earlier, all of I think it's been three years now at least, all of 400 families have been helped through that program essentially Bill mentioned because it was -- the eligibility requirements were so difficult. But it was also -- it was a very expensive program. The homeowner's gave up so much and paid so much more to be helped by that program that they gave up a tremendous amount of equity.

TAYLOREven after they've paid off their loan, they would have to share a tremendous amount of equity with the federal government so that it was almost like a, you know, the mafia designed that program or something. That's why it didn't work. So, you know, 29 billion for HAMP, only a billion gets used, and the fact of the matter is, what we should be doing, at least for those who are still working, we should help as many of those families from going into foreclosure, because everybody is injured by that. And that's the part that most -- many listeners don't understand.

TAYLORYou may not have a problem because you have a prime loan, or you -- you didn't get into this problem, but your property value has probably gone done because of this crisis. The sooner we create a floor in which, you know, property values stabilize and they begin to rise up, the better it is for everybody. And we're not going to be able to do that unless we get ahead of this foreclosure problem.

NNAMDIWe got an e-mail from Sally in Chevy Chase who said, "Last night, '60 Minutes' showed that banks hired other mortgage processing businesses to forge thousands of documents that the banks had earlier claimed to be missing.

TAYLORMm-hmm.

NNAMDIJohn Taylor?

TAYLORThat's right. I mean, that's -- again, they were moving so fast to push the millions and millions of loan products through this pipeline, that they didn't have time to even sign the documents. The program she's mentioning showed this one person, Linda Green, who took on the persona of various people who would sign her name, and none of them had any training in mortgages or finance or anything like that. They were simply who were paid $10 an hour to sign their name to loan documents that they had no -- and you had notaries notarizing their signatures of people who weren't even that person.

TAYLORI mean, it was -- the entire process was corrupt, and I think for that reason the attorney generals, as Bill mentioned earlier, are in a position where they can use that as leverage to begin to get the services and the financial services sector in general to play ball here in trying to prevent foreclosures -- forestall foreclosures, but to come up with some real remedies, maybe even create a substantial fund that's not gonna be tax payer based, but maybe is based through the investment or through the banking community, that -- that helps some of these homeowners stay in their homes.

NNAMDIAlan in Hyattsville, Md. has a question. Alan, you're on the air, go ahead, please.

ALANThanks, Kojo. Just a quick statement, then a question. I've been trying to navigate my family through this travesty for about two years now. I've far exceeded the criteria, it wasn't even close. I was -- I was refused because I wasn't in imminent default. Then I appealed that and then they said, oh, you're -- and I was -- I was behind one payment. Then they said, oh, you're behind one payment, so you're not -- you can't qualify. Then I appealed that again, and then I said I wasn't allowed to appeal anymore, I had to start over.

ALANAnd then the owner of my mortgage, Freddie Mac, employed a credit counselor to talk to me, and they said I was -- I was golden. I far exceeded criteria, I should qualify for this no problem. And then the bank says, you're -- the owner of your mortgage doesn't think you're suitable, doesn't want to give you this deal. It's not up to us, it's up to them.

NNAMDIYour question?

ALANMy question is, if this is -- if this is a voluntary system, then why is -- why is the government pumping billions of -- I mean, they're either paying these -- the banks to do this and cooperate, or it's a volunteer system. I don't -- there's a contradiction there surely.

NNAMDIBill Longbrake?

ALANCould you explain that?

NNAMDIAlan clearly feels that there's an inconsistency with the government giving money to banks, and then saying it's a voluntary system.

LONGBRAKEWell, what -- the details the Alan that has given are totally -- make sense to me. When Alan called Freddie Mac, and whoever he talked to at Freddie Mac said, you're golden, Freddie Mac is the owner of his loan. And so when he was told by the bank that the owner didn't agree, now you've got a conflict. Somebody is not telling the right story here. So that is part of the problem though. Because there are not standards that are out there.

LONGBRAKEMany of the bank servicers, we've talked about earlier are woefully understaffed. They're not well-trained, and they give inconsistent messages. And maybe even in Freddie Mac, I have no idea at this point, that the servicer talked to somebody else who had a different opinion. And that's -- unfortunately, I can't give a whole lot of advice, because that is the frustration that so many of ours are running into in the system today.

NNAMDIThank you very much for your call, Alan. Sharlyn (sp?) in Washington, D.C., you're next. Sharlyn, go ahead, please.

SHARLYNYes. First off I want to say that I bought my first home through NACA and they are a great program -- neighborhood stabilization program. And my question is, why would not -- if the government is serious about stabilizing neighborhoods and keeping people in their homes, why would they not follow that type of model? That was one question. Another question is, although I'm not an economist, and probably not even that good at math, it seems that -- and I'm a homeowner still today, it seems that with the interest that you pay on a mortgage, there should be some room in there for the banks to make money.

SHARLYNMaybe not as they want to, and also the homeowner to stay in their home and still contribute to the economy and their own family's well being. And I -- I just don't understand how if we are talking about the government working with people in good faith, how these types of remedies don't ever seem to be discussed.

NNAMDIJohn Taylor?

SHARLYNI guess that's my question.

NNAMDIJohn Taylor?

TAYLORYeah. I think -- I think Sharlyn's points and the previous caller, Alan, I think their points are well taken. Because it -- and I think the key phrase here from here was, if the government was serious. I don't know how serious they are, because you listen to these stories and you wonder, well, why didn't this person get help? Well, this person -- this -- the mortgager said this, the servicer said that. And you listen to these stories and you've got to think, well, gee, if they really wanted to do something, they could figure out solutions to this.

TAYLORAnd her example of NACA, which is run by Bruce Marks, and the work that they've done -- the work that NRCC has done, the work that HUD-certified counselors have done throughout the country, there really are solutions to this, and it's gotten harder with the unemployment. But there are solutions to helping those who are still working. And the problem is, it's very difficult navigating the maze. And I want -- I want to point out the perfect example, and perhaps Bill was trying to be kind and not criticize Freddie Mac too much, but Fannie Mae and Freddie Mac actually have a tremendous amount of these mortgages that they have under their control.

TAYLORAnd, you know, the other piece of the making home affordable program, there was HAMP, the other half of it is HARP, Home Affordable Refinance Program, and that's for Fannie and Freddie. They have the responsibility and the capability of being able to refinance these loans because they control them, but they've actually done, you know, very little market share, and they've pretty much done the low-hanging fruit. They haven't done any principle write downs to speak of.

TAYLORThey haven't had the impact that they could have, and that's the something that the government controls right now where they could have a tremendous impact on this foreclosure crisis. And, you know, I suspect that the Obama administration, you know, just doesn't want to see any more red ink from Fannie and Freddie, but it's gonna be this dying of a thousand slow cuts as opposed to trying to stitch up what you can and amputate where you need to so that we can get ahead of this problem.

TAYLORBut right now, there's a tremendous amount that Fannie and Freddie could be doing in addition to what we think lenders ought to be doing.

NNAMDISharlyn, thank you very much for your call. Speaking of what Fannie and Freddie should be doing, here's this e-mail we got from Alex. "While I understand that many, many people have been scarred by the devastating housing crisis, I'm deeply concerned at what appears to be a continued effort by the government to prop up housing prices through a variety of programs designed to relieve homeowners of their unbearable debt burden. If the housing bubble popped, shouldn't we take note? Is it not a terrible idea to continue to artificially inflate housing prices if the market has already determined that they are unsustainably high?" Bill Longbrake?

LONGBRAKEWell, the question in my mind is actually what is a fair housing price? Now, you can -- you can actually drive prices down below what's a fair price by doing foreclosures, dumping stuff on the marketplace, and that helps nobody, all right? So it's just simply foreclosing is not necessarily the answer. The answer really is selling houses, short sales or deed in lieu for those who can't afford to make payments, making modifications for those who can, but based on their income and their capability, and then the housing prices will stabilize.

LONGBRAKEI think Alex's comment is, are we providing subsidies that are officially holding housing prices higher than they would be in you just had a regular market. But my point would be, it could go a lot lower for the wrong reasons.

NNAMDIRunning out of time. Very quickly, Joe Schatz, the Financial Reform Bill officially known as the Wall Street Reform and Consumer Protection Act, passed last summer. The GOP would like to defund it, but if it stands, any portions of the bill related to the housing situation?

SCHATZWell, it's more -- most of the bill is more focused on sort of regulating the big banks, and regulating -- you have a new Consumer Financial Protection Bureau, which will deal a little bit, I believe in the housing market more on credit cards and other consumer issues. Maybe able to address this, I think the big -- the big focus was more on the banks, and as you mentioned, Republicans want to chip away at that through the budget process. But no success yet.

NNAMDINothing there for the housing bailout or house the housing situation, Bill?

LONGBRAKENo. There's nothing there. Actually it's going the other direction. The Republicans in the house would like to repeal most of the programs.

NNAMDIJohn Taylor?

TAYLORYeah. No. Look, I mean, not only, you know, (unintelligible) where it's gonna be helpful is going forward to try to prevent these kind of bad terrible loans that we saw from occurring. But the Republicans are also proposing to end HAMP, and it's like then you wait for the next sentence to say, and in lieu of that what we want is X, but there is no X. It's simply let everybody go into foreclosure, let them fail and...

NNAMDIAnd I'm afraid that's all the time we have. John Taylor is the executive director of the National Community Reinvestment Coalition. Bill Longbrake is the executive in residence at the Center for Financial Policy at the University of Maryland Smith School of Business, and Joe Schatz is a senior writer with Congressional Quarterly who covers economic policy and politics on Capitol Hill. Thank you all for joining us, and thank you all for listening. I'm Kojo Nnamdi.