SIGTARP's support for HAMP 'all but exhausted'
Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, does not fully advocate the termination of the government's mortgage modification effort, but he is running out of patience.
The House Financial Oversight Committee will hold a hearing Wednesday to determine the validity of a series of bills that would end several foreclosure prevention initiatives, including the Home Affordable Modification Program. The Treasury Department launched HAMP in March 2009 to provide an incentive to servicers for the modification of mortgages on the verge of foreclosure. Through December, participating servicers have started roughly 579,000 permanent modifications.
But the program has come under much scrutiny for not doing enough, with the latest and possibly most scathing report coming from one of its main watchdogs. In his written testimony, Barofsky criticized the Treasury for ignoring calls for major revamps beyond the recent "tweaks around the edges" announced last week.
"As a result, those who argue for keeping HAMP alive have an increasingly daunting task, and absent meaningful action from Treasury, SIGTARP’s 'support' of HAMP’s continued existence is all but exhausted," Barofsky said.
To date, SIGTARP has offered the Treasury 18 recommendations for how to change the program. Of these, the Treasury has fully implemented four, partially implemented five, and begun to partially implement two. More than 792,000 trial and permanent modifications have been canceled and another 152,000 wait in limbo, Barofsky said.
"HAMP’s failure to meet its original expectations has many causes, starting with a rushed launch based on inadequate analysis, an insufficient incentive structure, and without fully developed rules, which has required frequent changes to program guidelines," he added.
Laurie Maggiano, the program's main architect and the director of policy at the Treasury, pointed out last week at the Mortgage Bankers Association servicing conference a common defense of the program. She and other officials have claimed that the banks' proprietary modifications, which outnumber HAMP almost four to one, have been structured around the program.
"You think just maybe that big government standing behind servicers telling them to use this model led to more borrowers having more sustainable and more affordable mortgage agreements," Maggiano said.
But HAMP's other overseer, the Congressional Oversight Panel reported in December that "when pressed, Treasury acknowledges that there is no clear causal link between HAMP and proprietary modifications."
"Furthermore, while data suggests that proprietary modifications have generally improved from the homeowner’s perspective since the launch of HAMP, the terms of such modifications are typically far less advantageous, often including more unfavorable terms for the borrower, higher rates of redefault, and broader imposition of servicer fees that are specifically prohibited in HAMP," Barofsky said.
He added that because Treasury views these private modifications so admiringly, serious questions are raised as to why taxpayers must continue funding HAMP. While the Treasury initially said $75 billion in TARP money would be used for the program, the Congressional Budget Office reported last year that the program will end up costing taxpayers $22 billion by the time it expires at the end of 2012.
While the program continues to limp along, Barofsky said the program may be causing more harm than good. 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.
He added that homeowners who have never missed a payment while trying to get a HAMP modification face back payments, penalties, and even late fees that become due once their trial modification is canceled.
Maggiano said that Treasury will push servicers to excel in the program in 2011 after all the changes over the last two years. She cited that when she created teh Federal Housing Administration's modification program in the 1990's, it took two years for the program to gain traction and was ultimately deemed a success.
But Barofsky said that as things stand right now, there doesn't seem to be a clear path for HAMP to get there.
"While Treasury has acknowledged some of HAMP’s shortcomings, it has offered no meaningful plan going forward, and no meaningful way to measure program success," Barofsky said.
Write to Jon Prior.
Follow him on Twitter: @JonAPrior
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