Only a small fraction of the $7.6 billion Hardest Hit Fund relief made its way to struggling homeowners in the first year and half of operation, according to the Special Inspector General for the Troubled Asset Relief Program.
Just 3% of the money had been spent for 30,640 borrowers as of Dec. 31, 2011, nearly two years after the homeowner relief programs were approved, according to the report.
The Treasury Department originally announced HHF in February 2010 as a $1.5 billion program for five state housing finance agencies where home prices dropped 20%: Arizona, California, Florida, Michigan and Nevada. It soon grew through three additional rounds of funding to a $7.6 billion program going to 18 states and the District of Columbia.
The money was meant to develop programs and entice mortgage servicers to provide modifications, short sales, unemployment assistance and principal reduction. Treasury approved the first programs in June 2010 and initiatives in later states roughly three months later.
"The Hardest Hit Fund has experienced significant delay in providing help to homeowners due to several factors including a lack of comprehensive planning by Treasury and a delay and limitation in participation in the program by large servicers and the government-sponsored enterprises," SIGTARP said in the report.
More than 98% of the $217 million that has been spent went to assist unemployed borrowers. Only 436 borrowers received a principal reduction, in large part because servicers declined to implement the tool widely if Fannie Mae and Freddie Mac do not allow it.
"One large servicer told SIGTARP that 80% of its portfolio is with Fannie and Freddie, and said, '...We had to hold up on certain programs, waiting for Fannie and Freddie,'" according to the report.
The Federal Housing Finance Agency will decide in the next few weeks if it will clear principal reduction for Fannie and Freddie loans. Preliminary analysis signaled if such an allowance was ever made it would be done through the Home Affordable Modification Program and would be very limited.
Over the life of the Hardest Hit Fund, which ends in 2017, the state HFAs estimate helping 459,000 homeowners with some sort of relief.
"There will have to be a dramatic increase in the number of homeowners served to reach the most recent minimum," SIGTARP said.
Treasury Assistant Secretary for Financial Stability Timothy Massad said in response to the SIGTARP report that recent data shows the programs are beginning to ramp up. The number of homeowners assisted per quarter grew by 60% in the first three months of 2012, and the amount of dollars going to assist homeowners nearly doubled, he said.
"State HFAs had to establish their own program infrastructures from scratch — they did not rely on servicers' existing infrastructures to accept or process applications," Massad said. "Establishing static numeric targets is not well suited to the dynamic nature of HHF. To date there have been over 80 program changes by the 19 HFAs."