“The numbers are remarkably discouraging.”
—Neil Barofsky, Special IG for TARP, referring to HAMP’s effectiveness
The January 2011 report from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) provides little comfort that the Obama administration is successfully mitigating the economic downturn vis-à-vis the housing sector. To the contrary, Democrat policy attempts are falling far short of the intended goal of providing mortgage relief to Americans facing foreclosure.
Successive SIGTARP quarterly reports, in addition to reports from the Congressional Oversight Panel and the Government Accountability Office, have been particularly critical of the Home Affordable Modification Program (HAMP), a Democrat program that aims to reduce individuals’ monthly mortgage payments with direct payments to loan servicers for payment reduction or loan restructuring. The program, part of President Obama’s “Making Home Affordable” (MHA) initiative, has been singled out for slow uptake and the Treasury Department’s failure to set and monitor metrics for the program’s success.
Sadly, foreclosure filings have increased dramatically over the two years that HAMP has been in place. According to foreclosure data from RealtyTrac, a record 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009, and 2.3 million in 2008, with the prediction that filings will increase 20% in 2011. The firm’s data also indicate that bank repossessions continue to increase, from just less than 820,000 in 2008 to over 918,000 in 2009 to 1.05 million in 2010.
Issues of Concern
The Help Hurts Homeowners: The Treasury Department has obligated $29.9 billion of TARP funding to pay servicer, borrower, and investor incentives under the various mortgage support programs. As of December 2010, a total of 522,000 permanent modifications were in place under HAMP at a cost of approximately $1.0 billion. This number represents only a fraction of President Obama’s explicit goal of helping 3 to 4 million American homeowners avoid foreclosure through the program. At this rate, it will take about ten more years and billions of additional dollars to meet that mark.
A recent Washington Times op-ed explored the financial downsides of HAMP, highlighting the 735,000 homeowners who received “trial modifications” but were ultimately dropped from the program, in many instances, due to administrative or procedural irregularities on the part of lenders and/or servicers. These individuals could again find themselves facing foreclosure with the added pressure of being required to pay significant recoupment and processing costs as a result of losing the trial modification on their mortgage. Worse still, as Robert Cole, a Professor of Finance and Real Estate, noted in the op-ed, data suggests that many of these homeowner may have been “duped into delinquency” in the hope of qualifying for HAMP.
Mortgage Market Meddling: As Mark McWatters, a member of the Congressional Oversight Panel charged with overseeing Treasury’s actions related to TARP, has stated, “HAMP itself may have exacerbated the mortgage loan delinquency and foreclosure problems by encouraging homeowners to refrain from remitting their monthly mortgage installment based upon the expectation that they would ultimately receive a favorable restructure or principal reduction subsidized by taxpayers.” Additionally, SIGTARP’s July 2010 report referenced a program in which Bank of America was willing to reduce the principal on certain mortgages, funded without government support. However, upon hearing of the HAMP principal reduction program, the bank announced that it was “shifting its existing program into HAMP so that it could benefit from taxpayer subsidies.”
Sky-high Spending: President Obama’s penchant for a government solution increases moral hazard and has proven insufficient to the scope of the mortgage foreclosure problem. As Reuters reported last summer, “Increased housing commitments swelled U.S. taxpayers’ total support for the financial system by $700 billion in the past year to around $3.7 trillion, [SIGTARP] a government watchdog said.” The Treasury Department, in its rush to throw more taxpayer money at the problem, fails to understand the private sector forces that will remedy the situation—it is not in any bank’s fiduciary interest to hold and manage a foreclosed property nor is it preferable for homeowners to walk away from an underwater mortgage and suffer the consequences of personal bankruptcy. Yet programs such as HAMP have introduced conflicting incentives that are prolonging the pain and socializing economic losses among all taxpayers.
Fannie and Freddie Foul-Up: An October 2010 report from the Congressional Oversight Panel investigated the contracting authority exercised by the Treasury Department in administering TARP programs. The report examined the use of “financial agency agreements” signed with businesses to perform governmental functions on behalf of the United States. In an Appendix to the report, the Panel highlights a case study on the largest of these agency agreements: $215.6 million obligated to the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac to support the Obama administration’s failing Home Affordable Modification Program (HAMP). With a track record of billions of dollars lost since 2007, the Treasury Department contracting with Fannie and Freddie to perform administration and compliance for the administration’s Making Home Affordable initiative is akin to asking someone with a suspended driver’s license to be a chauffeur.
Consistent with House Republicans’ pledge to end the reckless, job-destroying spending of Democrats, Rep. Patrick McHenry (R-NC) has introduced legislation to end the Treasury Secretary’s authority to provide new assistance under HAMP, saving taxpayers’ money and reducing the federal government’s involvement in the housing market. The legislation is being considered on the floor this week.