Oversight Panel (Cop) took aim at both the Treasury Department and loan servicers
in a report issued Tuesday on the performance - or lack thereof - of the Home
Affordable Modification Program (HAMP).
The Panel even had a little blame left over to throw at Fannie Mae and
COP issued its last
report in April and at that time raised serious concerns about the timeliness,
accountability, and sustainability of Treasury's efforts, saying that
administrators were still struggling to get the program running but that, even
when it was operational, it would probably fail to reach the overwhelming majority
of homeowners in trouble. Since then,
the current report says, Treasury's modest changes "have not resolved the
Panel's core concerns."
It now looks, the
report says, as though HAMP will prevent only 700,000 to 800,000 foreclosures, far below the Administration's target of 3 to 4 million and a far cry from preventing the 8 to 13
million foreclosures expected by the end of 2012. Even setting the program's
goals was poorly handled by Treasury. Initially the Department stated a goal of helping
3 to 4 million homeowners avoid foreclosure and remain in their homes but then the
goal became more nebulous. Was that the
number of permanent modifications or was it trial modifications started or even
trial modifications offered?
Subsequently even that last goal was ratcheted down in number.
premise, COP said, was straightforward.
Because foreclosures allow the investor only a small recovery, lenders
should generally prefer to avoid that step.
HAMP was designed to further incentivize lenders to modify the loan rather
foreclose by offering payments to all parties to modify through a reduction in
monthly payments. "Yet despite the
apparent strength of HAMP's economic logic, the program has failed to help the
vast majority of homeowners facing foreclosure."
HAMP did not take
into account the complexity of the mortgage relationship. Rather than a one to one borrower/lender
situation, most mortgages involve a servicer whose interests may collide with
that of both of the other parties. The
report, without using the term, points to the misaligned incentives that have
been named by various regulators a dozen times in recent weeks as a major problem
in averting foreclosures. Those
misaligned incentives mean that servicers can make more money and get it faster
through a foreclosure than through any kind of intervention or
modification. HAMPs attempts to correct
this market distortion by offering payments to servicers, the report says,
appear to have fallen short, in part because servicers were not required to
participate in the program. The
servicers could be pressured by Treasury to sign up for the program, the report
says, but could not be pressured to actually do the modifications. The existence of second mortgages also
stymied foreclosures where the holders found they could profit from blocking
the modification of the senior lien.
HAMP failed to
collect and analyze data that would explain its shortcomings and does not even
have a method for collecting data related to some of the program add-ons. HAMP was also faulted for its failure to hold
loan servicers accountable for lost paperwork or refusal to do modifications. They have, the report said not gone much
beyond reluctantly clawing back some incentives when the servicers failed to
perform. Related to this is Treasury's decision to outsource much of the
responsibility for its own servicers' actions to Freddie Mac and Fannie
Mae. Both companies have critical
business relationships with those servicers and have been too eager to protect
those relationships. Freddie Mac was
specifically called out in the report for its unwillingness to enforce some of
its contractual rights related to foreclosure out of a stated concern it would
negatively impact its relationships with servicers who are also valued as the
source of loans. The report said that
Treasury should prevent such conflicts of interest and make sure servicers are
penalized where appropriate.
apparently be done to correct the past mistakes. According to the report Treasuries Authority
to restructure HAMP ended on December 3.
However, COP says that some problems can still be mitigated. For instance, applying for a modification
would be easier if on-line applications were permitted and Treasury should
carefully examine the program's history to pin down the factors that define
successful loan modifications for future reference. Some success can be reclaimed if Treasury,
going forward, carefully monitors and, if necessary intervenes, in cases where
borrowers fall behind with payments on their modified mortgages. "Preventing redefaults is an extremely
powerful way of magnifying HAMPS impact."
should accept that HAMP will not reach its goals. The Department continues to state that the
$30 billion allocated to HAMP from the Troubled Asset Relief Program will be
spent when it appears that only $12 billion and maybe even as little as $4
billion will actually be expended.
"Had Treasury acknowledged this reality before its crisis authority
expired, it could have made material changes to HAMP or reallocated the money
to a more effective program. Now that
option is gone."
The report concludes
"Treasury's reluctance to acknowledge HAMP's shortcomings has had real
consequences. Absent a dramatic and
unexpected increase in HAMP enrollment, many billions of dollars set aside for
foreclosure mitigation may well be left unused.
As a result an untold number of borrowers may go without help - all because
Treasury failed to acknowledge HAMP's shortcomings in time."