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 today.
"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 unabated."
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 trouble."
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."
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 modifications.
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.