The Obama administration’s central foreclosure-prevention effort won’t reach its original goals and the government should come up with clear, measurable objectives for the two-year-old program, according to a new report from a congressional watchdog.
Because the Treasury Department has failed to properly analyze the program it runs, it is nearly impossible for overseers and the public to determine whether it is a success, the Congressional Oversight Panel said in a report issued Tuesday.
The main Obama plan was designed to help people in financial trouble by lowering their monthly mortgage payments. Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period. The homeowners receive temporary modifications that are supposed to become permanent after borrowers make three payments on time and complete the required paperwork.
The oversight panel’s report poses questions to the government: How many foreclosures was the program, called the Home Affordable Modification Program, or HAMP, intended to prevent? What percentage of temporary home-loan modifications were intended to be made permanent?
Although the program has succeeded in preventing “some number” of foreclosures, in its current form it “will never have the reach necessary to put an appreciable dent into the foreclosure crisis,” the report says.
It notes that Treasury’s original goal of preventing 3 million to 4 million foreclosures has been reduced several times. The oversight panel estimates that the program will prevent some 700,000 to 800,000 struggling borrowers from losing their homes – compared with 8 million to 13 million foreclosures expected by 2012.
Treasury has the authority to spend up to $30 billion in taxpayer funds on the program. Only about $4 billion likely will be spent, according to the panel.
“We believe Treasury should come forward with what they think the real objectives of the program are right now,” Sen. Ted Kaufman, D-Del., the panel’s chairman, said in a conference call with reporters on Monday.
The report also says Treasury should hold banks that administer mortgages accountable for failing to complete loan modifications properly by, for example, losing paperwork. The department should be more willing to use its power to withhold or take back incentive payments to the banks in those cases, it says. The payments are made after permanent modifications are achieved and are spread over five years.
Kaufman said the HAMP program hasn’t failed. Rather, he said, “I think the program has just turned out to be a lot smaller and have a lot less impact on the housing market than we thought it should have.”
Tim Massad, Treasury’s acting assistant secretary for financial stability, said that while the number of permanent modifications won’t meet the original goal, the government has set a new standard for the industry as the program has been widely imitated in the private sector.
The number of loan modifications made outside the government program has exceeded those in it, according to data compiled by bank regulators.
The average homeowner in the program is saving $500 a month on mortgage payments, Massad said in a separate conference call Monday.
The program has helped “alleviate the worst housing crisis that we have seen in decades,” he said.
The report also recommends that Treasury enable borrowers to apply for loan modifications online, and to monitor cases and intervene when borrowers fall behind on their payments on modified mortgages.
The panel was created by Congress to oversee Treasury’s $700 billion rescue program that came in at the peak of the financial crisis in the fall of 2008. Of the total, $75 billion was earmarked for mortgage assistance programs, including HAMP.