HAMP watchdog says compliance should not be an option

The Special Inspector General for the Troubled Asset Relief Program renewed calls for the Treasury Department to crackdown on mortgage servicers in the Home Affordable Modification Program. The program launched in March 2009. Through it, the Treasury allocated $29 billion to 112 participating servicers for modifying delinquent mortgages, according to the latest TARP report from the Treasury. Through August, these servicers provided roughly 816,000 permanent modifications through the federal program, roughly half what they do through their own programs. And these private programs have redefault rates roughly twice as high. As the servicers routinely average between 25,000 and 30,000 HAMP mods per month, SIGTARP concluded nearly 600,000 homeowners who are potentially eligible for the program will not receive a permanent modification before the program expires at the end of 2012. "If Treasury does not take action to change the status quo of its compliance program, servicers will not take action to change their status quo. Compliance with program guidelines is not, and must not be, voluntary," SIGTARP said in its report to Congress released this week. The Treasury has made an array of changes. In September, servicers were required to install a single point of contact for borrowers being considered for the program. The companies also must communicate in writing at least 10 times with the borrower throughout the process, but SIGTARP found this benchmark wasn't enough. The Treasury also withheld HAMP funds to Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) for denying too many modifications the Treasury said should have been granted through "second look" reviews. However, if BofA and Chase make improvements needed, the would receive the funds, and Wells already has. SIGTARP said this sort of crackdown is proof that when the public is given a clearer picture of servicer performance, that performance improves. The agency, as it's done before, called on Congress or the Treasury to install strict benchmarks for these servicers to reach and then enforce them. For instance, there is no penalty if a servicer takes three to four months to convert trial modifications into permanent ones as required under the guidelines. "With just one year left for new mortgage modifications in HAMP, it is not too late for Treasury to make changes to the program," SIGTARP said, "and there remains much that it can do to improve." Write to Jon Prior. Follow him on Twitter @JonAPrior.

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