Critics Question Administration's Mortgage Modification Programs
One program, designed to help up to 4 million homeowners get relief, has offered permanent aid to less than 900,000.
Critics of the Obama administration's mortgage modification programs told a congressional subcommittee this week that the government programs designed to tackle foreclosure crisis are failing.
Delivering the harshest critique was Neil Barofsky, formerly the government's officially-sanctioned watchdog over bailout funds.
As part of the bailout, Congress created a program called HAMP(Home Affordable Modification Program) that provided incentives to mortgage servicers that agreed to reduce the monthly payments of homeowners facing foreclosure.
The Treasury Department has originally said HAMP was designed to aid 3 to 4 million homeowners avert foreclosure, but it hasn't come close to that yet. Through August just 691,000 homeowners got the aid they were sought. Meanwhile, more than 891,000 homeowners who were offered aid on a trial basis had it revoked.
“By any meaningful definition, that effort has been a failure,” said Barofsky in his prepared testimony before the committee. Barofsky, a lifelong Democrat, was known for delivering particularly critical reports of bailout and especially HAMP during his tenure as the bailout watchdog. He resigned earlier this year.
The program has been beset by administrative mistakes from its inception, largely the result of the government relying on mortgage servicers to run it. Treasury hasn’t offered any strict punishments of servicers who don’t administer the program properly, and the program has notoriously been plagued by criticism from borrowers who say that servicers lose their paperwork, are difficult to reach and provide inaccurate information about HAMP. The overwhelming majority of housing counselors interviewed for a Government Accountability Office study released earlier this year said that borrowers generally have a negative experience dealing with HAMP.
Barofsky, now an adjunct professor at New York University School of Law, says modification numbers “pale in comparison” to both the administration’s goals as well as the 1.2 million foreclosures that have already happened in the first half of 2011 alone. He estimated that the program would wind up offering permanent aid to 700,000 to 800,000 homeowners.
The biggest problem with the program, Barofsky and others critics have noted, is that at its onset it didn’t include an effort to reduce the principal owed on mortgages (a program that does so was later introduced and has aided fewer than 11,000 homeowners). Principal reduction may have been less appealing to banks and servicers but it also would have been a more effective way to maintain homeownership.
The administration has touted the success of HAMP, almost always citing the larger number of trial modifications that have been launched since the program's inception -- nearly 1.7 million – instead of the much smaller number of modifications that became permanent.
Treasury and Housing and Urban Development officials also cite 2.4 million modifications made by servicers privately, outside of HAMP.
Yet HAMP isn't the only mortgage program that isn’t living up to hopes. The Home Affordable Refinance Program, or HARP, was launched two-and-a-half years ago and has helped about 838,400 homeowners through June, despite an initial goal of aiding 4 to 5 million. President Obama has proposed easing eligibility requirements for HARP.
Another program announced more than a year ago, the Emergency Homeowners Loan Program (EHLP), was intended to provide up to $50,000 in zero-interest loans to homeowners who’ve lost their jobs or become underemployed. Of the $1 billion appropriated for the program, only half of it will be used to assist fewer than 12,000 people who qualified, a HUD official testified. Officials acknowledge that's a disappointment and say it took the government longer to establish the program than anticipated.
The House has passed legislation that cancel EHLP, as well as HAMP and two other housing programs. Those bills are unlikely to move in the Senate.
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