Today, the Congressional Oversight Panel (COP) released its April Oversight report, “Evaluating Progress on TARP Foreclosure Mitigation Programs”, discussing the Department of the Treasury’s progress in stemming fallout from the home mortgage crisis. Reviewing the state of the housing market and the general economy, the COP notes that with 2.9 million notices in 2009, foreclosures continue at a rapid pace, increasing costs to borrowers, lenders, neighboring homeowners, cities, and the broader economy.
COP identified lack of efficacy in Treasury’s measures as the primary cause. On March 6, 2009 the COP issued its first report, which also focused on Treasury’s foreclosure mitigation efforts. That report emphasized affordable monthly payments, sustainable mortgages, servicer incentives, borrower outreach, and industry participation as critical elements for a successful mortgage mitigation program. The COP acknowledged that Treasury has taken steps to address these items through the Home Affordable Modification Program (HAMP), reducing payments for unemployed borrowers and working with lenders to encourage principal write downs. Yet, COP says that Treasury continues to trail the crisis’s advance and needs to address the following concerns:
- Timeliness. Since early 2009, Treasury has initiated six foreclosure mitigation programs, with increasing incentives for participation by borrowers, lenders, and servicers. There is reason to be concerned that this pattern of providing rising incentives may exacerbate the problem, as lenders and servicers could choose to withhold modification in hopes of receiving more favorable terms. Also, loan servicers have expressed confusion about the constant flow of new programs, new standards, and new requirements that make implementation more complicated. Even if Treasury’s recently announced programs succeed, their impact will not be felt until early 2011, causing the economy ongoing strain.
- Sustainability. Many borrowers continue to experience financial difficulty, despite HAMP, with typical post-modification borrowers still paying roughly 59% of total income to service household debt after HAMP provisions apply. Those who suffer even minor financial disruptions will likely face new default, leading to what the COP sees as the worst form of program failure: billions of taxpayer dollars being spent to delay rather than prevent foreclosures.
- Accountability. The sum of announced funding for Treasury’s individual foreclosure programs exceeds the total amount actually set aside. A question arises as to whether Treasury will scale back programs or scale up its financial commitment to the foreclosure prevention effort. Furthermore, the COP sees a need for Treasury to better monitor the activities of participating lenders and servicers, audit them, and enforce program rules with strong penalties for failure to follow the requirements.