Policy Lags Hit Housing Policies

One problem in government macro problems is the policy lag problem. It takes time to recognize that we are in a recession, time to decide a policy and then it takes time for that policy to have an effect. I think this problem came up the article Housing crisis reality sets in. It is an AP article that I saw in the San Antonio Express-News on 2-18-2010, page 4C. It is about the government plan to help people keep their houses that began about a year ago. The key exerpts are:

"The plan, Obama told a cheering audience of high school students, would keep as many as 9 million people in their homes by lowering their monthly mortgage payments."

"The numbers show a program that failed to deliver. About 116,000 homeowners have had their loans modified to reduce their monthly payments, the Treasury Department said Wednesday. Only about $15 million in incentive money has been paid to more than 100 participating mortgage companies. That's 0.02 percent of the $75 billion available."

"Interviews with officials in the Obama and Bush administrations, bank executives and housing experts show the government launched the effort without thinking through many of the details of such a complex program. Banks were ill-prepared, as well. To implement the program, it took months to hire and train thousands of workers — many of whom had no experience in the mortgage industry."

"Since March:

•1 million people have entered the modification program, and almost 12 percent, or 116,000, have completed the process.

•A third of homeowners who made the three monthly trial payments on time now have fallen behind.

•More than 61,000 homeowners have dropped out, and hundreds of thousands more are expected to do so in the coming months."

•About 220,000 homeowners whose homes have plummeted in value have refinanced."

Notice that an unforseen consequence arose, that alot of workers had to be trained to handle the program so it took longer than expected to get things going. That is the policy lag problem. It can take too long for government programs to work and they might end up being the wrong thing at the wrong time.