The Obama administration’s efforts to help troubled homeowners avoid foreclosure continue to fall dramatically short, and they are “unlikely to improve substantially in the future,” the Congressional Oversight Panel says in a scathing report out today.
The panel says the Treasury Department’s main foreclosure-targeting effort, the Home Affordable Modification Program, is on pace to prevent 700,000 to 800,000 foreclosures—well short of Treasury’s initial expectations of stopping 3-4 million foreclosures. The program appears on track to spend only $4 billion of its $30 billion authority under the Troubled Asset Relief Program, because Treasury officials refused to change the program materially before their ability to do so expired in October, the panel says.
Now, the report says, “many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help—all because Treasury failed to acknowledge HAMP’s shortcomings in time.”
A Treasury official defended the administration’s efforts, saying the HAMP program had set an “industry standard” that led to 2 million privately conducted mortgage modifications to avert foreclosure, and that the department had structured the program “to be careful stewards of taxpayer dollars.”
“The important thing is to keep in perspective what the program has accomplished,” said Timothy Massad, acting assistant director for financial stability at Treasury. “One can criticize it, but you have to compare it to the alternatives. That’s where there’s not really any consensus,” he added.
Massad noted that of the five panel members unanimously backing the report, three believe HAMP should go further and two think the private sector can handle foreclosure aversion on its own.
Still, this was not the first warning shot the panel leveled at the department. It aimed similarly harsh criticisms at Treasury in April, under the leadership of Harvard University Professor Elizabeth Warren. In September, Warren left to set up Treasury’s newly created Consumer Financial Protection Bureau and was replaced by then-Sen. Ted Kaufman, D-Del.
If anything, the panel’s view of the Treasury foreclosure program has soured further since the spring, with the latest report acknowledging administration officials have “tweaked” the program but still “have not resolved the panel’s core concerns.”
Those concerns start with foreclosure prevention, an effort the latest report says has proven far more complicated than Treasury anticipated.
HAMP is designed to offer financial incentives for borrowers and lenders to restructure mortgages so lenders can afford to continue payments. But market forces induce some parties to a mortgage to resist modification. Loan servicers reap profits from foreclosure fees, for example, and many homeowners also owe on second mortgages whose holders would profit from keeping the loans as they are.
Treasury officials, the panel says, have also failed to hold to basic accountability standards for their efforts—or to collect information that would help improve them.
“Despite repeated urgings from the panel,” today’s report says in its executive summary, “Treasury has failed to collect and analyze data that would explain HAMP’s shortcomings, and it does not even have a way to collect data for many of HAMP’s add-on programs. Further, Treasury has refused to specify meaningful goals by which to measure HAMP’s progress, while the program’s sole initial goal—to prevent 3-4 million foreclosures—has been repeatedly redefined and watered down.”
The report also claims Treasury has “essentially outsourced” oversight of loan servicers to Fannie Mae and Freddie Mac, companies that maintain “critical business relationships” with the servicers they are charged with watching over.
Most of those problems are essentially unfixable at this point, the panel said. But it offered some small opportunities for continued improvement, including allowing borrowers to apply for loan modifications online. It also urges Treasury to intervene to help borrowers falling behind on mortgages they modified with the government’s help, in order to prevent re-default.
This article appeared in the Tuesday, December 14, 2010 edition of National Journal Daily.
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