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GOVERNMENT PLANS TO HELP HOMEOWNERS FALL SHORT
Posted by on Jul 15, 2012 in Blog | 2,929 comments
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UPDATE- JULY 26, 2012-
Less than 10% of the $45.6 billion Congress allocated for federal and state housing programs after the crisis has been spent as of June 30, according to the special inspector general of TARP.One $8.1 billion program would have allowed current underwater borrowers get a principal reduction and then refinanced into a new Federal Housing Administration-backed loan. But only 1.7% of the funds have been spent and fewer than 1,500 borrowers made it through the program since it launched in September, according to a SIGTARP report released Wednesday.
This FHA Short Refi was originally thought to reach as many 1.5 million borrowers.
Roughly $29.9 billion was allocated for the long hindered Home Affordable Modification Program and its many sub projects for short sales and unemployment forbearance. But just 6.4% of that money was spent through June. Roughly 1 million borrowers received a permanent HAMP workout so far. A recent expansion is expected by some analysts to bring in another 500,000, but it will still land far short of the original 3 million to 4 million estimate.
Only 1.7% of the $7.6 billion Hardest Hit Fund money was spent as well. This money, initially released in early 2010, went to state housing finance agencies to use for principal reduction, modification and unemployment programs.
In its report released Wednesday, SIGTARP criticized the Treasury Department for not setting goals for the states taking money from HHF.
“Rather than set meaningful goals for HHF and measure progress against those goals, Treasury chooses instead to rely on its requirement that each state estimate the number of households to be assisted. This number has limited usefulness,” SIGTARP said. “By refusing to set any goals for the programs, Treasury is subject to criticism that it is attempting to avoid accountability.”
Other programs outside of TARP proved more successful, especially the recently expanded Home Affordable Refinance Program for Fannie Mae and Freddie Mac loans. The program doubled this spring, but the boom may slow by September, according to some.
House Republicans voted to end these housing programs last year, but the Senate never acted on the bills. The Obama administration even extended HAMP another year to the end of 2013.
Senate Democrats are still looking to expand refinancing programs in particular. The most recent one from Sen. Jeff Merkley, D-Ore., could reach as many as 8 million borrowers paid for by selling government bonds.
UPDATE- JULY 25, 2012-
In a new book, TARP’s former inspector general claims that he warned Timothy Geithner’s Treasury Department repeatedly that the mortgage program, HAMP, was a disaster waiting to happen. Instead of listening, he says, Geithner plowed right ahead with it, to serve the banks.Neil Barofsky, the congressionally appointed watchdog for the Troubled Asset Relief Program, which pumped $700 billion to banks, auto makers and homeowners after the crisis, argues in the book that the Home Affordable Modification Program introduced in early 2009 was poorly thought out and executed, opening the door for abuse.
“The hurried rollout of HAMP would soon bring with it a rash of misconduct and criminal activity,” Barofsky writes. “Treasury’s bungling of HAMP and its refusal to heed our warnings and those of other TARP oversight bodies resulted in the program harming many of the people it was supposed to help.”
As it turned out, the main beneficiaries of the mortgage program were the banks — a repeated theme in Barofsky’s book, “Bailout: An Inside Account Of How Washington Abandoned Main Street While Rescuing Wall Street,” a copy of which was obtained before its release by The Huffington Post. The book is fairly blistering in its assessment of the Treasury Department’s handling of the bailouts, saying Geithner & Co. consistently took pains to avoid causing problems for the banks, often at the expense of homeowners and taxpayers.
“We haven’t seen the book, but we wish Mr. Barofsky well,” said Treasury spokesman Matt Anderson, in response to a request for comment.
Even without Barofsky’s charges, HAMP has widely been viewed as disappointing. It has given permanent relief to nearly 1 million homeowners, but that is well shy of the 3 to 4 million it was intended to help. More borrowers have had their modifications canceled than are still in the program. The program has been riddled with some of the servicer abuse and incompetence Barofsky says he saw coming.
In fact, a new Government Accountability Office report about TARP released on Thursday agrees with many of Barofsky’s assessments of HAMP. The program hasn’t reached nearly as many people as intended, the GAO found, and Treasury has failed to properly assess risks or ensure transparency in the program.
“Treasury may have difficulty mitigating potential risks, such as an increase in redefaults or the misuse of funds; effectively assessing program outcomes; or holding servicers accountable,” the GAO wrote in its report.
Barofsky’s concerns about HAMP began when he watched a “twitchy, sweaty and obviously nervous” Geithner announce only bare-bones information about the program, as part of a broader new bailout plan, in February 2009 — a dismal performance by Geithner that caused the stock market to tumble that day.
“The markets were hoping for detailed programs, and they expressed their disappointment with Geithner’s vacuous speech with a large sell-off,” writes Barofsky, 42, a former Manhattan federal prosecutor. A self-described Democrat who donated to President Obama’s 2008 campaign, he was appointed by President George W. Bush.
Further details of the mortgage plan were painfully slow in coming.
“That became Treasury’s modus operandi,” writes Barofsky. “[F]irst, announcements intended to ‘shock and awe’ the media that made for good sound bites but were not particularly well thought out; then, weeks later, scattered and incomplete details that had to be reworked on the fly. And finally, poor program execution that accomplished little, if any, of the originally announced goals.”
The few details that did come to light troubled Barofsky. The program was essentially going to be operated by mortgage servicers, who were not prepared to handle millions of modifications. They also had no incentive to help homeowners, according to Barofsky, because in a foreclosure they get their fees before anybody else. Barofsky worried this conflict of interest would “cripple” the mortgage plan.
He also worried that the program did not include “tight underwriting standards, such as requiring written verification of borrowers’ residence and income.” He thought mortgage servicers would “try to collect payments for loans that either did not exist or that were so deeply in default that they had no chance of qualifying for the program.” And he feared homeowners could fall prey to “fraudsters, who would charge struggling borrowers large up-front fees in return for empty promises” of mortgage help.
On Feb. 26, 2009, Barofsky says, after getting no response from Treasury officials about his concerns, he sent Treasury official Neel Kashkari a set of recommendations for protecting homeowners. Kashkari, another holdover from the Bush administration, said Treasury considered itself advised. “Several” of those recommendations weren’t included, however, and Barofsky says the fraud soon followed.
“After just a few months, we were already seeing a rash of just the kinds of abuses we had feared,” he writes.
In response to homeowner complaints about mortgage servicers, Treasury “demonstrated no interest in taking even the most modest steps to punish them,” Barofsky writes. “That was unconscionable, given the pain being inflicted on so many home owners.”
In a meeting with Geithner — this one involving fewer f-bombs than others – Barofsky says he finally realized the root of the Treasury Department’s apparent lack of interest in helping homeowners: They apparently had another goal in mind.
At the meeting, Elizabeth Warren, then chair of a congressional oversight panel established in 2008 to oversee the bailouts, questioned Geithner about HAMP’s ability to help homeowners — not the last time she would grill him.
“In defense of the program, Geithner finally blurted out, ‘We estimate that they can handle ten million foreclosures, over time,’ referring to the banks. ‘This program will help foam the runway for them.’”
To Barofsky it seemed that Geithner saw HAMP mainly as a way to stretch out the foreclosure process, giving banks time to recover from the crisis without having to be hit with a wave of foreclosures all at once.
“Helping the banks, not home owners, did in fact seem to be Treasury’s biggest concern,” Barofsky writes. “HAMP was not separate from the bank bailouts; it was an essential part of them.”
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