The government failed to help homeowners as much as it helped Wall Street firms, and a federal program intended to avert home foreclosure fell vastly short of its goals, according to the recently released final report of a government watchdog panel.

The Troubled Asset Relief Program, or TARP, is best known for bailing out financial firms, insurance giants and automakers. But it also included a program called the Home Affordable Modification Program designed to help struggling homeowners keep their houses. It functioned by paying mortgage servicers incentives for adjusting the terms of those loans. If TARP was the bailout of Wall Street, HAMP was intended to be the help for Main Street.

But the program hasn’t helped anywhere near the number of families that it was supposed to, according to the Congressional Oversight Panel, the government’s official TARP watchdog.

“(T)he TARP program that directly reached the most participants – HAMP – was also one of the least effective, in part because Treasury found the task of coordinating hundreds of banks and loan servicers and millions of homeowners to be nearly overwhelming,” the panel wrote. It has previously reported that HAMP “would not make a significant dent in the foreclosure crisis.”

Local officials have a vested interest in the success of HAMP, since foreclosures hurt property values and destabilize communities. Groups representing localities are opposed to recent efforts by Republicans to eliminate HAMP, largely because it's been the federal government's largest tool for addressing foreclosures. There is little that localities can do to help distressed homeowners.

When President Obama announced HAMP in early 2009, he said it would prevent 3 to 4 million foreclosures, yet it now appears on pace to aid only 700,000 to 800,000, according to the panel.

The program functions by temporarily modifying the terms of home loans by reducing their interest rates or extending their lengths.  On average, those lucky enough to get HAMP modifications save $500 per month. In theory, if homeowners make their modified payments on time, their modifications are rendered permanent. But Treasury has actually kicked more people out of HAMP (740,000) than have received permanent aid through the program (608,000).

(See chart below comparing the cumulative number of permanent modifications to the cumulative number of cancelled modifications. Article continues after chart.)