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."
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 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.
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 said.
"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.