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SIGTARP Slams Treasury for HAMP Justifications

Neil Barofsky, the Special Inspector General for TARP, has released his latest report to Congress, and he singles out for criticism the Treasury Department’s management of the HAMP program, and their dishonest portrayals of how it impacted struggling borrowers.

The inspector general’s report also said Treasury took too much credit for helping homeowners who did not ultimately benefit from Treasury’s Home Affordable Modification Program.

Treasury has said several times that its mortgage modification program has “helped” more than 1.3 million homeowners by reducing their monthly mortgage payments, calling each of these a “success,” the report said.

However, Barofsky’s team took issue with the level of success, saying more than 700,000 of the modifications ultimately failed and another 173,000 remained in limbo.

“It may be true that many homeowners may benefit from temporarily reduced payments even though the modification ultimately fails,” the report said. But it adds that, “Treasury’s claim that ‘every single person’ who participates in HAMP gets a ‘significant benefit’ is either hopelessly out of touch with the real harm that has been inflicted on many families or a cynical attempt to define failure as success.”

Hundreds of thousands of homeowners approved for a trial modification paid more money to banks, hoping to get a permanent modification, which they could have saved. They ended up with ruined credit scores, because the trial modifications read as defaults on credit checks. When kicked out of the trial modifications, they had to either find thousands of dollars in back payments and illegally tacked-on fees or face immediate foreclosure. A few wound up accepting worse modification terms through private mods than the government would have mandated in HAMP. More of them ended up in foreclosure, in some cases despite never having missed a payment asked for by their bank.

The full report from Barofsky is here. He covers the AIG bailout and the overall cost of TARP as well. On page 66 he gets into the homeowner support programs. Treasury has reduced their obligation to HAMP through TARP to $45.6 billion, down from an initial $50 billion. Of that, $0.6 billion, or 1.3%, has actually been expended. We are over 18 months from the commencement of HAMP and these other foreclosure mitigation programs, and Treasury has kicked in all of $600 million dollars. The GSEs, which were supposed to provide another $25 billion, have been good for about $0.45 billion so far.

The section on loan servicing is really interesting. I’m reading through it now and will probably update here.

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David Dayen

David Dayen