The Obama administration's embattled mortgage aid plan
is coming under fresh criticism from a government watchdog who says the
program is wasting billions of taxpayer dollars simply to delay --
rather than prevent -- foreclosures.
In the last year, the Treasury Department's $75 billion Home Affordable Modification Program (HAMP) has been blasted by Democrats, Republicans and watchdogs alike.
Despite a flurry of recent changes to the program, the
Congressional Oversight Panel, chaired by Harvard Prof. Elizabeth
Warren, outlines a slew of criticisms in a new report to be released
"Treasury's programs are not keeping pace with the foreclosure
crisis," the panel says in the report. "Treasury is still struggling to
get its foreclosure programs off the ground as the crisis continues
To date, only around 170,000 borrowers have received permanent mortgage modifications under the program.
While Treasury has said that 1.3 million borrowers have been offered
trial mortgage modifications, a total of 2.8 million homeowners
received foreclosure notices last year, a fact the Panel says indicates
that the administration's response is lagging "well behind" the speed
of the crisis.
"For every borrower who avoided foreclosure through HAMP last
year, another 10 families lost their homes," the panel says. "It now
seems clear that Treasury's programs, even when they are fully
operational, will not reach the overwhelming majority of homeowners in
Even if the program fulfills its goal of helping 3 million to 4
million borrowers stay in their homes, the panel said, "the goal itself
seems small in comparison to the magnitude of the problem."
Mortgage Aid Program Under Fire
Specifically, the panel finds problems with three areas of Treasury's
program: the timeliness of the government's response, the
accountability of the program and the sustainability of the mortgage
It is on the latter where the Panel makes its strongest criticisms.
"Most borrowers who proceed through HAMP will face a precarious
future, but their resources will be severely constrained," the panel
says. "Many will have no equity in their homes and are likely to
question whether it makes sense to struggle so hard and for so long to
make payments on homes that could remain below water for years.
"Many borrowers will eventually re-default and face
foreclosure. Others may make payments for five years under a so-called
permanent modification, only to see their payments rise again when the
modification period ends," the panel says.
"The re-defaults signal the worst form of failure of the HAMP
program: Billions of taxpayer dollars will have been spent to delay
rather than prevent foreclosures."
On the issue of timeliness, the panel says Treasury's
continuous changes to the program have caused confusion among banks and
could even cause banks to delay loan modifications in the hopes of
receiving greater incentives in the future.
Even if Treasury's most recent changes to help unemployed and
underwater borrowers prove successful, the panel says, the impact of
those changes will not be felt until early next year.
On accountability, the panel says Treasury should be clearer
about the amount of taxpayer money set aside for foreclosure prevention
programs. The panel also calls on Treasury to closely monitor the
performance of banks in helping homeowners, after banks were blasted
for giving homeowners the run-around.
Treasury spokeswoman Meg Reilly has responded to the panel's
report by highlighting new data for the foreclosure prevention program
that will be released on Wednesday.
As of the end of last month, "More than 1.4 million homeowners
have received offers for trial modifications and more than 1.1 million
borrowers were receiving a median savings of $500 each month," Reilly
said in a statement.
"Permanent modifications have been granted to more than 230,000
homeowners and an additional 108,000 permanent modifications have been
approved by servicers and are pending only borrower acceptance," Reilly
"We strongly agree with the COP's assessment that foreclosures
are at an unacceptable high rate, which is why this program has been
designed to prevent avoidable foreclosures," Reilly said.
"These programs are not intended to help every homeowner in
trouble," she said. "The Administration's programs were designed to
help responsible, eligible families keep their homes, not for investors
or speculators, and not to save million dollar houses or vacation
homes. We also must recognize that we cannot help those who simply
bought a home that they could not afford."
Wednesday, the same day Treasury releases the latest HAMP data,
the House Financial Services Committee will hold a hearing on HAMP
featuring Treasury official Phyllis Caldwell.