When the Obama administration launched its primary mortgage modification program in 2009, the White House said the plan promised relief for 3 million to 4 million families.
Two years later, the numbers haven't come anywhere near reaching that total. The Home Affordable Modification Program, partially funded through TARP, is providing permanent aid to only 540,000 homeowners as of January. Now, House Republicans are pushing legislation that would kill HAMP and several other housing programs. And the program's chief watchdog, the Special Inspector General for TARP Neil Barofsky, has suggested that may not be a bad idea. "[T]hose who argue for keeping HAMP alive have an increasingly daunting task, and absent meaningful action from Treasury, [my office's] 'support' of HAMP's continued existence is all but exhausted," Barofsky wrote in testimony prepared for a House Financial Services subcommittee Wednesday. Local leaders have a vested interest in the success of the administration's mortgage modification efforts, since foreclosures destabilize neighborhoods and reduce property values. They're opposed to ending HAMP and the other programs, especially because they lack the ability to prevent foreclosures on their own. Yet the number of homeowners facing foreclosure dwarfs the number who have been aided by HAMP. Last year, there were more 2.9 million foreclosure filings, according to RealtyTrac figures that Barofsky cited. Even more are projected this year. Under HAMP, Treasury pays financial incentives to mortgage servicers who are willing to modify the mortgages of borrowers struggling to make payments by reducing interest rates and extending the terms of their mortgage. Homeowners seeking HAMP aid are initially placed into "trial modifications," and they theoretically can move to "permanent modifications" after three months if they are eligible for the program and make their trial payments on time. In practice, getting a trial modification means very little, since more homeowners have had their trials canceled -- 740,000 -- than made permanent. Homeowners have reported spending many months in trial modifications, even though that's not supposed to happen, often due to servicers losing paperwork and not fully following program guidelines. Those canceled modifications frequently leave homeowners in even worse shape, with higher outstanding principal and worse credit scores. "It is apparent that Treasury has no intention of meaningfully responding to these failures in performance or design," Barofsky said. Barofsky also highlighted the fact that HAMP relies on mortgage servicers to administer the program, but despite numerous instances of servicers making grave mistakes, Treasury has never financially penalized them. Given that track record, it's unlikely reforms will occur in the future, he said. Barofsky also said that program lacks meaningful benchmarks to its success or failure, and Treasury has regularly changed the standards by which it measures HAMP. The department often touts the number of trial modifications made through HAMP, as opposed to active permanent modifications, a figure that watchdogs like Barofsky, the Congressional Oversight Panel, and the Government Accountability Office generally recognize as more meaningful. Additionally, Treasury hasn't fully implemented recommendations to improve transparency and accountability in HAMP, said Mathew Scire, director of financial markets and community investment at the GAO. Meanwhile, Treasury won't provide a firm estimate of how many people is expects HAMP to ultimately help. Barofsky called that stance "a basic failure in transparency" and said Treasury is "trying to cover up a program that is clearly a failure." Timothy Massad, the acting assistant secretary for Treasury's Office of Financial Stability, wrote a letter to the subcommittee defending the program. He said it only releases taxpayer funds to servicers when a mortgage is successfully modified, so it can't be considered wasteful. Echoing Congressional Democrats, he also said it would be dangerous to rescind HAMP without establishing a replacement program. "Put simply, ending HAMP now, without a meaningful alternative in place, would mean that struggling homeowners would have far fewer ways of coping with the worst housing crisis in generation," Massad wrote. "Instead, their fate would be left solely in the hands of the same mortgage servicers whose standards are widely recognized to be in need of reform." Mike Wallace, program director for housing and community development at the National League of Cities, told Governing that HAMP isn't perfect -- but it is achieving results. "It's helping families," Wallace said. "It's just not helping the number of families we want." Republicans on the financial services committee have also introduced legislation to cancel three other housing programs, including the Neighborhood Stabilization Program, which provides assistance to state and local governments to acquire and redevelop foreclosed properties that may otherwise become blights in their communities. About $7 billion over the past three years has been appropriated for the program. The bill would end the program and rescind $1 billion that has not been spent. Republicans argue that NSP doesn't directly aid at-risk homeowners facing foreclosure and may actually provide an incentive for lenders to foreclosure. NLC and other groups representing government have likened the dispute over NSP to the efforts to cut CDBG funding, which also goes directly to localities. He said local officials are trying to educate Congressional lawmakers about the role of NSP in an effort to save it. Also on the chopping block is the FHA Refinance Program. A Republican-backed bill would rescind almost all the funding for the $8.12 billion program. Republicans say the program is underutilized and had only 35 applications as of December. Legislation also targets the Emergency Mortgage Relief Program, which provides HUD with $1 billion to spend on emergency payments for homeowners facing foreclosure. The Republicans argue that the loans actually cause borrowers to fall even more in debt. The four bills are scheduled for markup Thursday, said Rep. Judy Biggert, chair of the Insurance, Housing and Community Opportunity subcommittee. Several Democrats, including Rep. Al Green and Rep. Maxine Water, said canceling the programs would punish citizens -- not the administration -- and advocated for HAMP to be reformed instead of gutted altogether. "We have helped Wall Street. We have helped Main Street. Now it's time to help 'Home Street,'" Green said. "These are dollars for homeowners."