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Treasury defends HAMP as mortgage modifications dip in January

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Mortgage servicers participating in the Home Affordable Modification Program converted 27,957 trials into permanent modifications in February, down slightly from the month before. The Treasury Department launched HAMP in March 2009 to provide incentives to servicers for the modification of mortgages on the verge of foreclosure. Through January 2011, servicers started 607,607 permanent modifications. The Treasury expects to spend roughly $30 billion in Troubled Asset Relief Program dollars for these workouts with additional money from Fannie Mae and Freddie Mac. But the program has come under heavy criticism and threats from Republicans, who have filed a bill to end the program before it expires at the end of 2012. The Special Inspector General for TARP, Neil Barofsky said in written testimony Wednesday those defending the program, which will fall short of the originally estimated 3 million and 4 million borrowers, are finding it harder to do and his own support for the program is waning. But Treasury Assistant Secretary Tim Massad said in a conference call with reporters Wednesday that Barofsky "generates more heat than light." "We're happy to take the suggestions from SIGTARP that help us improve performance, and we're being very aggressive in compliance reviews and getting the servicers to perform, because this is an industry that was not prepared," said Massad. "There are clearly problems at the servicers. Performance has been inadequate. But let's just remember, unless we change the eligibility criteria, the pool is still what we've estimated. That's the key thing." According to the Treasury, 1.4 million borrowers are currently eligible for the program, and Massad said simply that they overestimated how many distressed borrowers HAMP could reach when it launched. "Frankly, we overestimated. We were in the midst of the worst financial crisis since the Great Depression. In a crisis, you act quickly. You have to. There was an estimate made, and we weren't sure," Massad said. "This program has generated data that didn't exist before. People didn't have it before. We made the best calculations we could at the time." More than 808,000 trials and permanent modifications were canceled since the program began, but Phyllis Caldwell, the Treasury Chief of the homeownership preservation office said the majority of those still go on to other foreclosure assistance like the FHA Short Refi program is also in danger of being terminated. "At this stage, it's important to remember that we have some new programs still under way such as the FHA Short Refi that is very important in dealing with negative equity and we are still getting the short sale program up and running," Caldwell said. "Working with the principal reduction option in HAMP, servicers are now required to determine eligibility for it. It's important to allow the new programs to take effect." Still foreclosures are on the rise, and HAMP remains behind. RealtyTrac reported in January there were 3.8 million foreclosures in 2010, a new record likely to be broken in 2011. Failed trial modifications can often leave borrowers with more principal outstanding on their loans, less home equity, depleted savings, and worse credit scores, Barofsky said in his testimony. Still, Treasury will continue to fight for the program in the face of mounting opposition. Their main point is that while current numbers are lower than originally expected in a troubled time, people are still getting help. "Things like the Making Home Affordable program were meant to smooth out the concerns and the volatility in the market, and we feel that these concerns will return if the programs are ended," Massad said. "Remember that the amount of money that we spend is proportionate to the amount of people helped. Why continue? Because between 25,000 and 30,000 people are getting modifications every month, and that is significant." Write to Jon Prior. Follow him on Twitter: @JonAPrior

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