Neil Barofsky, special inspector general for the Troubled Asset Relief Program (SIGTARP), has been highly critical of the government's foreclosure prevention programs in[IMAGE]recent months. On Tuesday, he released his ""quarterly report to Congress"":http://www.sigtarp.gov/reports/congress/2010/April2010_Quarterly_Report_to_Congress.pdf, and put the administration's new initiatives to help unemployed and underwater homeowners under the microscope.
He said to the Treasury's credit, the changes are an important step forward in addressing the flaws of the Home Affordable Modification Program (HAMP) â€" in particular expanding borrower participation and addressing re-defaults driven by negative equity â€" but raise several issues that could impede the program's effectiveness.
Barofsky said in the report, ""Treasury's urgency in rolling out the new initiatives, laudable as it is, risks significant costs in the form of ill-defined goals, incomplete program guidelines, increased vulnerability to fraud, incentives that may prove ineffective, and the potential for arbitrary treatment of participating borrowers.""
SIGTARP has put forth a laundry list of suggestions to address these issues. First and foremost, he says Treasury needs to clearly identify participation goals and expected costs for each HAMP subprogram.
To safeguard the program against fraud, Barofsky wants the Treasury to drop its differing valuation requirements across the various HAMP programs and adopt the Federal
[COLUMN_BREAK]Housing Administration's (FHA) appraisal standard for all principal reduction and short sale programs.
He says because the program guidelines don't require appraisals prior to a principal write-down, it is easier for servicers to deceptively meet the criteria for incentive payments.
""No program of this type and scale can be considered well designed without robust protections of taxpayer funds against the predation of criminals,"" the report said.
Barofsky also says that the voluntary nature of the principal write-down effort undermines its effectiveness. He wants the Treasury to consider mandating principal reduction under specific scenarios to ensure consistent treatment of similarly situated borrowers and to address servicer conflicts of interest.
He also suggests the Treasury lengthen the three-month minimum term of the unemployment forbearance program.
Despite Treasury's efforts thus far, the inspector general said, HAMP has made ""very little progress"" and the ""foreclosure crisis has not abated."" He noted in his report that nearly 2.8 million foreclosures were initiated in 2009 and 2010 is on pace ""to be even worse."" There were more than 932,000 foreclosure filings in the first three months alone, with bank repossessions up 35 percent compared to 2009 levels.
Juxtaposed next to these numbers, HAMP just doesn't measure up â€" only 230,000 permanent modifications made over the program's 12-month existence. Barofsky says HAMP's progress represents only 8.2 percent of the foreclosures initiated in 2009, and fewer than only the most recent quarter's actual bank repossessions.
""Until Treasury fulfills its commitment to provide a thoughtfully designed, consistently administered, and fully transparent program, HAMP risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results,"" Barofsky said in his report to Congress.