Two years after it was launched with far more ambitious goals, the Obama administration’s main program to prevent foreclosures came under fire in Congress Wednesday while the Treasury Department received a final barrage of criticism from the departing inspector general of the TARP program.
The program, known as HAMP (short for the Home Affordable Modification Program), has led to permanent loan modifications for about 540,000 mortgages so far, Treasury officials said in a monthly update Wednesday. As Paul Solman reported last year, that’s far below the 3 to 4 million foreclosures that were supposed to be prevented when the program was announced in February 2009.
Given that it remains on track to provide fewer than 30,000 permanent modifications each month, no one expects HAMP to help nearly as many people as initially intended.
Those lower numbers were front and center at a hearing Wednesday afternoon before the House Financial Services Committee hearing on HAMP and other government foreclosure efforts. Some House Republicans want to kill the program and rescind its funding with a new law (the bill is HR 430).
“This is very different than what was said when it began,” said Rep. Patrick McHenry, R-N.C., one of the co-sponsors of the Republican bill to kill HAMP.
Democrats and housing groups also remain unsatisfied, but say it makes no sense to kill the program even if it’s not as successful as once hoped. Nearly 3 million households filed for foreclosure last year and that number is expected to grow in 2011. Some estimates suggest more than 12 million people are facing foreclosure from 2008 to 2012.
“It did not do everything it should do,” Rep. Maxine Waters, D-Calif., said. “But I’m not willing to talk about eliminating a program that helps some people.”
When HAMP was announced shortly after President Obama took office, it was expected to be a successor to a program in the Bush administration that was widely considered too easy on mortgage lenders and servicers. Some $50 billion from TARP was set aside for all foreclosure programs like HAMP (and another $25 billion separately from Fannie Mae and Freddie Mac).
But so far, of the $30 billion allocated to date for HAMP and other programs, just about $1 billion has been spent. The Obama administration also says that not nearly as many people are eligible for the program as originally expected — only 1.4 million or so qualify.
HAMP offers incentive payments to mortgage lenders and servicers to modify the terms of their loans. While that usually does not translate into a reduction in principal, it can mean lower rates, extending the length of the loan and more affordable refinancing.
Treasury officials say it also has led to more trial modifications that are being processed and has encouraged the industry to adjust loans privately, but critics say a much smaller percentage of those will result in permanent adjustments.
The program is essentially voluntary and some officials have criticized Treasury Secretary Tim Geithner for not using fines and penalties to force banks to work more aggressively to help homeowners.
That was part of the criticism leveled today by Neil Barofsky, the inspector general of TARP program who has publicly criticized Geithner on many occasions.
“Secretary Geithner continues to celebrate the status quo,” he told members. “With near universal and bipartisan agreement that HAMP is failing, Treasury stands alone in its defense.”
Barofsky was even more withering in his prepared remarks.
Treasury “has no meaningful plan going forward and no meaningful way to measure program success,” he wrote. “Instead … it reportedly promises a conference of mortgage services that … will possibly ‘tweak around the edges.'”
In a phone call Wednesday, Treasury officials defended the program, arguing it was helping many people directly and indirectly, including stopping mortgage lenders from simultaneously pursuing foreclosing on a home and modifying the same mortgage.
As for the lower expectations, Tim Massad, the acting assistant secretary for financial stability, told reporters:
“Frankly, we overestimated how many people would be eligible. In a crisis (as was the case in 2009), you have to act quickly. We weren’t sure how many people were eligible. None of that data existed before. We made the best calculations we could at the time.”
Massad also told reporters that Treasury was limited in its ability to bring fines and penalties to banks. Since the program is largely voluntary, Treasury officials said, it’s essential to make sure banks continue to work with HAMP and not in sharp conflict with it.
For now, it appears unlikely that the bill would survive the Senate if it makes it out of the House as a stand-alone piece of legislation. But administration officials are concerned it could be attached to another pivotal piece of legislation that Democrats needed to pass.
The Obama administration has another worry, Treasury Department spokesman Steve Adamske said.
“We are concerned that people outside of Washington will see this effort to kill it, people who are calling for help now and will decide to give up,” he said.
You can see Treasury’s latest report on HAMP and other foreclosure programs here: