On Friday, the Congressional Oversight Panel (COP) released a report entitled “An Assessment of Foreclosure Mitigation Efforts After Six Months.” The report is part of the COP’s charge under the Emergency Economic Stabilization Act (EESA) to assess the effectiveness of foreclosure mitigation efforts from the standpoint of minimizing long-term costs and maximizing benefits for taxpayers. The report follows an earlier report and a recent field hearing that examined foreclosure mitigation efforts under the Making Home Affordable (MHA) Program and its loan modification program, the Home Affordable Modification Program (HAMP).
The report, adopted by a vote of 3-2, finds that the benefits of foreclosure modification are likely to outweigh the cost to taxpayers. Nevertheless, the report indicates that the COP has three concerns with the current approach to HAMP:
- Scope - As a result of HAMP’s limitations, the report expresses doubt that the HAMP program will be able to meet Treasury’s stated goal of preventing 3 to 4 million foreclosures. Specifically, according to the report, limiting the program to adjustable rate mortgages and interest-only loans ignores the fact that the mortgage crisis has moved from subprime mortgages and into the predominantly fixed-rate prime mortgage market.
- Scale - Despite the fact that Treasury’s near-term target for HAMP is 500,000 trial modifications by the end of 2009, it may not be large enough, the report argues, to slow down the foreclosure crisis and its impact on the economy. The report notes that Treasury’s goal of modifying 25,000 to 30,000 loans per week would mean that fewer than half of the predicted foreclosures would be avoided.
- Permanence - The report notes that it is unclear whether loan modifications actually put homeowners into long-term stable situations. The report states that only a small portion of trial modifications have resulted in long-term modifications. Most modifications, according to the report, are not permanent and increase negative equity for many borrowers. The result, according to the report, is that for many homeowners foreclosure may simply be delayed rather than avoided.
Included in the report are the additional views of Richard H. Neiman who, although he voted in favor of the report, notes that, although he sees great potential in current programs, it was too early to make conclusive judgments.
The two members voting against the report, Rep. Jeb Hensarling (R-TX) and former SEC Commissioner Paul Atkins, struck decidedly different tones from the majority of the COP. In his comments, Rep. Hensarling states that “HAMP and the Administration’s other foreclosure mitigation efforts to date have been a failure.” After 40 pages of discussion of the shortfalls of current programs, he closes his critique by providing a suggested oversight plan for the COP that would address his concern that the COP continues to place policy objectives above transparent and critical oversight.
Atkins’ objections to the report are based in what he describes as gratuitous advice and comment on additional legislation, matters of behavioral economics, or academic studies. According to Atkins, the role of the COP is to report on problems with the programs and seek their corrections. Atkins also levels criticism at the substantive recommendations contained in the report, saying that foreclosure mitigation efforts are “best left to private parties and judges to sort out the issues to ensure some sort of accountability, not another grand entitlement program funded by the taxpayer that discounts legitimate concerns of propriety of subsidies and moral hazard.”