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SIGTARP Report Shows Failure of Treasury’s Hardest Hit Fund

The LA Times had the goods on the Treasury Department’s Hardest Hit Fund a month ago, showing that in California, the fund only paid out 2% of its allotment in the first 16 months. But that was about one state’s implementation of the program. Maybe other states did better.

Well, the answer is no. An Inspector General’s report at Treasury shows once again how incompetent design and a desire to have a light touch on the banks conspired to fail struggling homeowners again:

A fund to support homeowners in the communities hit hardest by the collapse of the housing bubble has disbursed just 3 percent of its budget and aided only 30,640 homeowners in the two years since its creation, according to a report released on Thursday by a federal watchdog office.

The Hardest Hit Fund, which was created in the spring of 2010, grants money to state housing finance agencies for efforts to help families that are facing foreclosure. It has “experienced significant delay” because of “a lack of comprehensive planning” by the Treasury Department and limited participation by Fannie Mae, Freddie Mac and the large mortgage servicers, said the report by the special inspector general for the Troubled Asset Relief Program.

“TARP wasn’t supposed to be just a bank bailout,” said Christy L. Romero, the special inspector general for TARP, in an interview. “It was specifically designed with the goal of helping homeowners, and our concern is that that goal may not be met.”

Keep that last paragraph in mind the next time someone tells you that TARP worked. You know, you never hear about the design trouble with the part of TARP intended to get money out to banks. Only with the part intended to get money out to homeowners.

I can hear the alibi from Treasury now. The Hardest Hit Fund was a grant, you see. The states run the program. It’s on them. But the rate of disbursement bears a strong resemblance to pretty much every rate of disbursement in every Administration housing program. $217.4 million out of a $7.6 billion budget in two years is right in line with the failures of HAMP. The fish rots from the head down, and that’s pretty much exactly what the special IG, Christy Romero, found. Treasury provided no leadership or planning on how to get the money out quickly. And they didn’t use its power to get servicers and even the GSEs to participate in the program. Instead they let the states bargain, despite greatly reduced bargaining power. This made the program largely discretionary, and predictably, a failure.

I don’t know why we haven’t seen one member of the Administration’s housing policy design team resign in disgrace.

Here’s the full report from SIGTARP. Tim Massad from Treasury’s reply notes that “last quarter the number of homeowners helped by the fund grew 60 percent and the amount of money delivered to homeowners increased 93 percent.” The fact that 2% has been delivered in total shows the low bottom that inflates this “progress.” It’s fun with numbers. Clearly Treasury thinks you’re stupid.

More from the Huffington Post.

UPDATE: I may just add little tags from the report all day. For example: the program was supposed to have five components:

1. principal reduction
2. second-lien payoff
3. reinstatement through payment of past due amounts
4. unemployment assistance
5. transition assistance like a short sale or deed-in-lieu foreclosure

78% of the meager benefits have been unemployment assistance, and 98% either that or reinstatement. Principal reduction, a clear component of the Hardest Hit Fund, hasn’t been done at all. But Ed DeMarco is history’s greatest monster.

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David Dayen

David Dayen