Posted on Friday, December 17, 2010
he Obama administration’s signature foreclosure prevention program will help only 700,000 Americans save their homes, according to a scathing report released Tuesday by the Congressional Oversight Panel (COP).
The group’s assessment falls far short of the 3 to 4 million homeowners that the president pledged would receive more sustainable mortgage loans when the Home Affordable Modification Program (HAMP) was launched in March of last year, and is well below the 8 to 13 million foreclosures COP says are expected by 2012.
Treasury initially committed $75 billion of Troubled Asset Relief Program (TARP) funds to the HAMP initiative, which pays incentives to servicers, investors, and homeowners for each loan that is successfully modified. COP, which is charged with overseeing the use of TARP money, says it now appears Treasury will spend only $4 billion on HAMP incentives.
“Absent a dramatic and unexpected increase in HAMP enrollment, 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,” the report said.
The members of the congressionally appointed panel went so far as to call the government’s loan modification program “ineffective,” and they said Treasury’s reluctance to acknowledge HAMP’s shortcomings has had “real consequences.”
Since COP’s last report on HAMP eight months ago, the panel noted that Treasury has made “minor tweaks” to the program, but COP says the changes have not resolved its core concerns.
The report blatantly states that Treasury has failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications. Treasury has essentially outsourced the responsibility for overseeing servicers to Fannie Mae and Freddie Mac, but both companies have critical business relationships with the very same servicers, calling into question their willingness to conduct stringent oversight, according to COP.
The panel says Freddie Mac, in particular, has hesitated to enforce some of its contractual rights related to the foreclosure process, arguing that doing so “may negatively impact our relationships with these seller/servicers, some of which are among our largest sources of mortgage loans.”
Treasury’s authority to restructure HAMP ended on October 3, when TARP expired, and COP says because the deadline has come and gone for any major overhaul, “the program’s prospects are unlikely to improve substantially in the future.”
“Many of the problems now plaguing HAMP are inherent in its design and cannot be resolved at this late date,” the panel said in its latest report. “Other problems, however, can still be mitigated.”
For instance, COP says Treasury should enable borrowers to apply for loan modifications more easily by allowing online applications. The panel says Treasury should also carefully examine HAMP’s track record to pin down the factors that define successful loan modifications so that similar modifications can be encouraged in the future.
One area that COP called “most critical,” is redefaults. The panel says Treasury should carefully monitor and, where appropriate, intervene in cases in which borrowers are falling behind on their HAMP-modified mortgages.
“Preventing redefaults is an extremely powerful way of magnifying HAMP’s impact,” the report said. “Delinquencies that are flagged in their early stages can potentially be brought current through a repayment plan, but delinquencies that are left unchecked have the potential to undermine even the modest progress made by HAMP.”
COP says worse still, each redefault represents thousands of taxpayer dollars that have been spent merely to delay rather than prevent a foreclosure.
Carrie Bay DSNews