CBO Expects Treasury to Use Just $20B of TARP to Mitigate Foreclosures

The Treasury has committed $50 billion of Troubled Asset Relief Program (TARP) funds for the administration's Home Affordable Modification Program (HAMP), which provides direct payments to mortgage servicers to help homeowners avoid foreclosure.

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""New estimates released"":http://www.cbo.gov/ftpdocs/112xx/doc11227/03-17-TARP.pdf by the Congressional Budget Office (CBO) this week show that the administration is expected to use no more than $20 billion to pay servicers for permanent loan restructurings when all is said and done. The projection indicates that the CBO expects HAMP to help far fewer distressed homeowners than the administration originally promised.

When President Obama and Treasury Secretary Timothy Geithner announced the program in February 2009, they said up to 4 million at-risk borrowers would be able to lower their payments and ward off foreclosure with a HAMP workout.

Since then, the general consensus is that the federal program has slowed the pace of foreclosures by drawing out the resolution timeline, but many analysts argue that the numbers so far are disappointing at best and some lawmakers have gone so far as to call HAMP ""an abject failure.""

The ""latest HAMP report card"":http://dsnews.comarticles/servicers-complete-170000-permanent-hamp-mods-2010-03-12 from the Treasury shows that through February â€" a full year since implementation â€" about 170,000 homeowners have received long-term relief and been placed in a permanent modification.

With the slow progress, administration officials have begun to carefully reword their expectations of program

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results. They now say that up to 4 million borrowers _could qualify_ for a HAMP trial, after which servicers will determine if they are eligible for permanent assistance.

According to the CBO, through January 2010, the Treasury had disbursed a total of $31 million to HAMP servicers in the form of incentive payments.

The office notes that another ""$1.5 billion in TARP funds"":http://dsnews.comarticles/obama-pledges-15b-for-unemployed-and-underwater-homeowners-2010-02-19 is currently slated to provide direct grants to state housing agencies in California, Arizona, Nevada, Michigan, and Florida to develop their own mortgage assistance programs based on local needs as a supplement to HAMP.

CBO's latest report puts the final price tag for all TARP programs â€" including bank and corporate bailouts and private investment partnerships, as well as foreclosure mitigation programs â€" at $109 billion. That's about $10 billion more of taxpayers' money than the agency's earlier estimate in January.

Much of that estimated cost is associated with the assistance provided to American International Group (AIG) â€" at a cost of about $36 billion â€" and the automotive industry-at a cost of about $34 billion. The government's bailouts of banks, on the other hand, are expected to yield a profit of about $7 billion, CBO said.

CBO's cost projection for TARP is lower than estimates published by the Office of Management and Budget (OMB), which puts the total cost of TARP transactions at $127 billion.

According to a statement from the CBO director, OMB's estimate is $18 billion higher because of differences in their calculations of the cost of assistance to AIG and in the amount expected to be disbursed under HAMP.

Of the $700 billion authorized under the TARP umbrella, CBO estimates that $344 billion is outstanding or will be disbursed before the program expires on October 3, 2010.

A separate study conducted by the University of Louisiana at Lafayette and cited by the ""_Washington Post_"":http://www.washingtonpost.com/wp-dyn/content/article/2010/03/17/AR2010031704046.html shows that more than 10 percent to TARP recipients with debt outstanding failed to pay the government a quarterly dividend last month. The _Post_ quoted the report as concluding the missed payments mean the government ""probably extended TARP too far.""