Plagued by delays, too few permanent modifications and the likelihood of re-defaults, the Obama Administration’s foreclosure rescue program is failing on several levels, according to a report by the official overseer of the government’s bailout program.
About two-thirds of the one-year-old, $75 billion Home Affordable Modification Program, or HAMP, is funded by the government’s primary bailout vehicle, the Troubled Asset Relief Program, TARP.
The scathing report on the foreclosure prevention program was written by Neil M. Barofsky, special inspector general, Office of the Special Inspector General for the Troubled Asset Relief Program, TARP.
The HAMP study was prompted because of “disappointing results” that have raised questions about its effectiveness, he said.
Echoing similar criticism from Republicans, Barofsky focused on the U.S. Treasury’s apparent shift from the program’s initial goal of “actually” helping 3 to 4 million homeowners reduce monthly mortgage payments to the current goal of making “offers” to the same number of borrowers.
“Transparency and accountability demand that Treasury establish goals that are meaningful, and that it reports its progress in meeting such meaningful goals on a monthly basis,” Barofsky said. “Continuing to frame HAMP’s success around the number of ‘offers’ extended is simply not sufficient.”
A year into the program and only 168,708 borrowers facing possible foreclosure have received permanent modifications through February. One Treasury official noted that 1.5 to 2 million permanent mortgage reductions are estimated over the course of the four-year program.
Based on that figure, the program will “not be a long-term success if large amounts of borrowers simply re-default” and end up facing foreclosure, the overseer’s report said.
“Given the prevalence of negative equity in mortgages eligible for modification, re-defaults resulting from negative equity, including strategic defaults, may be a factor as borrowers decided that it makes more economic sense for them to walk away from their mortgages, notwithstanding the lower payments,” the report said.
The report recommends the following:
- Treasury should prominently set goals on how many homeowners will actually be helped through permanent modifications;
- Set goals for other performance metrics;
- Undertake a sustained public service announcement campaign as soon as possible both to reach additional borrowers that could potentially be helped and to “arm the public with complete, accurate information.”
- Re-examine the program’s structure to minimize the rise of re-defaults.
Click here for the full report, including a written response from Treasury.