Shortcomings of foreclosure relief programs are legion

Billions set aside for homeowner relief haven't been spent

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Almost nobody reads reports that start with the gobbledygook word "SIGTARP" and run hundreds of pages. Virtually no newspapers give them coverage, and you can totally forget the evening TV news.

Which is a shame because the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) assembles more information on how well the federal homeowner relief and foreclosure prevention "stimulus" programs — the HAMPs, HARPs, HAFAs and other efforts run by the Obama administration — are performing than any other entity in government.

Last week SIGTARP released its latest quarterly report. The numbers are pathetic, given the millions of foreclosures that have forced families out of their houses over the past three years, and given the reality that 11 million-plus owners are still stuck with underwater mortgages.

The big banks and AIG all got their federal TARP bailouts. The automakers got theirs. Meanwhile, homeowners heading for foreclosure or bankruptcy on Main Street got a lot of lofty predictions about the financial help on the way from Washington — the original forecasts by the administration in 2009 were for more than 9 million troubled owners to get loan modifications, help with payments during unemployment and principal reductions.

But as the years have passed, it’s turned out to be more talk than action. The mainstay loan modification program, HAMP, had helped just 818,803 owners as of June 30, rather than the 3 million to 4 million originally forecast back in early 2009.

It gets worse. According to the inspector general’s report issued last week, just 10 percent — $4.56 billion — of the $45.6 billion set aside for helping keep homeowners in their houses had been spent as of the end of June.

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One program — created by Treasury to provide financial incentives to loan servicers and investors who agree to principal reductions or cancellations of burdensome second liens in connection with refinancings of FHA loans — has produced zero cancellations as of June 30. The much ballyhooed FHA "short refi" program, funded with up to $8 billion for loss coverage, has produced just 1,437 refinancings.

Another major TARP program, the $7.6 billion "hardest hit fund," which was designed to provide special help to underwater borrowers in the 19 states where property devaluation and high unemployment have created the most serious problems for homeowners — including California, Arizona, Nevada, Florida and Michigan — has barely been tapped.

Just 5 percent of the allocated money has been spent, mainly on temporary unemployment assistance or loan reinstatements, rather than on the principal reductions that could have helped underwater families get back on track for the long term. Only 43,580 families had been assisted as of March 31, according to the report.

What’s gone wrong with programs like these that once merited splashy White House introductions but now rarely get mentioned in an election year? Pretty much the same as what’s gone wrong with most of the other housing stimulus programs: poor initial program design followed by subpar execution.

The inspector general is scathingly critical of Treasury on both scores, and unhappy that the department ignores its recommendations on how to get the "hardest hit" money out to folks in need.

Treasury "has not set measurable goals … that would allow (it), the public and Congress to measure the progress and success" of the programs. This opens Treasury "to criticism that it is attempting to avoid accountability," said the inspector general. Treasury failed "to enlist large servicer support" for its ambitious multistate, "hardest hit" effort, and didn’t provide state housing agencies sufficient help in convincing large banks to participate.

Treasury’s design and execution of the HAMP (Home Affordable Modification Program) has contributed to the shortfall in assistance provided to homeowners, according to the report. By allowing investors to include an extra "risk premium" in the crucial "net present value" calculations that give borrowers entry to a loan modification, the department has been instrumental in more than 160,000 otherwise-eligible homeowners being turned down for financial assistance, SIGTARP auditors found.

In a study of a sample of HAMP case files, auditors also found that just two out of 149 applications they studied had correct net present value inputs and documentation. No wonder so many homeowners have complained about the hassles of getting through the HAMP process and into a permanent modification.

All of which raises a larger question: How come we hear about Solyndra in this campaign season, but not about housing relief? Solyndra looks to cost the federal government up to $500 million. What about the tens of billions set aside for homeowners that have never been spent, even as millions lost their houses to foreclosure and short sales?

It ought to be on the table.

Ken Harney writes an award-winning, nationally syndicated column, "The Nation’s Housing," and is the author of two books on real estate and mortgage finance.

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