In his report to Congress published this week, Neil Barofsky described the drawbacks and potential problems the bank bailout had created in regard to companies deemed ""too-big-to-fail."" His report also covered controversial issues surrounding the Home Affordable Modification Program (HAMP), designed by Treasury as a foreclosure prevention effort.
Barofsky is the special inspector general for the Troubled Asset Relief Program (TARP). The HAMP initiative, including incentive payouts to servicers, borrowers, and investors, is funded with TARP dollars.
HAMP, Barofsky says in the report, ""continues to fall dramatically short of any meaningful standard of success.""
According to Barofsky, the program was doomed from the beginning, because it was inefficiently designed with inconsistent rules that have been revised too frequently. He calls the 522,000 permanent modifications the program provided in 2010 ""anemic,"" and calls attention to the more than 792,000 trial and permanent modifications that have been canceled and more than 152,000 that are still in limbo.
In December, the Congressional Oversight Panel estimated that at this rate, HAMP will generate anywhere from 700,000 to 800,000 permanent modifications, a far cry from the 3 to 4 million modifications predicted by Treasury.
Not only does Barofsky assert that HAMP is not working because of poor design and implementation, but he also says another issue is the participation and administration of the program by servicers. Servicers, he says, have been compounding the problems of the program with unnecessary delays, by failing to follow program standards, and even by misplacing borrower paperwork. Treasury's reaction to these issues has been lenient because of a fear that enforcing the program rules will encourage servicers to discontinue use of HAMP all together.
""Without meaningful servicer accountability,"" Barofsky writes, ""the program will continue to flounder. Treasury needs to recognize the failings of HAMP and be willing to risk offending servicers. And if getting tough means risking servicer flight, so be it; the results could hardly be much worse.""
Barofsky extends an appeal for TARP to maximize the potential benefits of HAMP by setting ""realistic and meaningful goals for its collective foreclosure prevention efforts.""
North Carolina Congressman Patrick McHenry, chairman of the oversight subcommittee on TARP issued a statement expressing his disappointment after receiving his copy of Barofsky's report.
""Ã¢â‚¬Â¦the so-called Home Affordable Modification Program yet again gets a failing grade,"" he said. ""What will it take for the Treasury to realize that serious changes must be made to this program? Homeowners are hurting and this program continues to do more harm than good.""