The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) concludes its report to the Treasury Secretary with a number of recommendations for improving the performance of the Home Affordable Modification Program (HAMP); suggesting changes to both policies and administration.

One of the primary criticisms the report made of HAMP was its failure to establish goals that were reasonable measures of what it actually was designed to accomplish.  Treasury's stated goal of three to four million offers to borrowers to modify their loans was essentially meaningless, according to SIGTARP, because the program could reach or even greatly exceed that goal while still actually helping only a few homeowners.  Instead, the report recommends that Treasury rectify the confusion that its own statements have caused with respect to its goals and expectations for the program.   "Treasury must unambiguously and prominently disclose its goals and estimates of how many homeowners will actually be helped...and report monthly on its progress to meeting that goal."

Beyond measuring modifications, the Department should develop other performance metrics.  As an example, the report suggests goals for servicers to meet in processing modifications such as the time involved, the numbers of modifications relative to the number of the servicers' loans that are in default or to foreclosures in general, or the rate of borrowers falling out of the program.   "Having specific goals and metrics and comparing performance against those goals will be essential in further refining the program and measuring its success."

The program should greatly increase its marketing efforts including a sustained public service campaign to reach additional borrowers who might be helped by the program and to arm the public with complete and accurate information about the program to avoid confusion and delay and prevent fraud and abuse.  The report had specifically criticized the earlier lack of marketing materials designed for its target audience, its meager attempts to gauge whether information was reaching troubled borrowers, and the absence of a public service television campaign.

The Department was advised to reconsider its policy that allows servicers to substitute alternative forms of income verification based on the servicers' subjective determination.  This makes it difficult to determine whether the rules are followed from both a compliance and oversight perspective.  Because servicers have both an economic and public relations incentive to convert as many trials to permanent modifications as possible, "this provision seriously risks being the exception that devours the rule, with servicers applying loose underwriting standards to generate higher conversion rates."  The report states that, if Treasury believes it is appropriate to expand the forms of income verification, it should do so in an open and transparent manner rather than simply deferring the decision to the servicers.

The entire program structure should be reexamined to ensure that the program is adequately minimizing the risk of re-default.  "If HAMP ends up being a foreclosure mitigation program that merely delays foreclosures rather than preventing them, the program will be of questionable value, particularly in light of the huge investment of taxpayer funds."  The report suggests that the program at present does not address the issues of non-mortgage debt, second liens on the property, interest rate resets after the five-year modification term ends, and the fact that many homeowners are hopelessly underwater on their mortgages.  These conditions are all factors that can lead to re-default.

The report concludes by acknowledging that Treasury has done a "considerable amount of work and made progress in establishing the administrative framework of the program" but warns that the Department must promptly address the issues raised in the report.  "Failure to do so," it says, "could result in a lost opportunity to make sure that the TARP program that was specifically intended to benefit Main Street as well as Wall Street succeeds."