COP: Problems With Foreclosure Prevention Programs “Inherent, Cannot be Resolved”

This morning the Congressional Oversight Committee released its December report on foreclosure prevention programs.  According to the Committee, “the program has turned out to be a lot smaller and have a lot less impact on the housing market than we expected”.

In particular, the report lambasted the government’s flagship foreclosure prevention program, Home Affordable Modification Program (HAMP), which was created in 2008 and “has been repeatedly redefined and watered down”.  According to the study, the program, originally aimed at preventing 3 million foreclosures is unlikely to prevent one third that number, and has been deemed “ineffective”.

I have repeatedly attacked HAMP in the past for being a labyrinthine morass of paperwork and confusion.  It utterly fails to take into account that the mortgage servicer system has been set up in such a way that mortgage servicers can make significant amounts of money when a house is foreclosed upon.  Additionally, participation in the program is voluntary, which makes it difficult to compel lenders to participate.  The Committee cited many of these same reasons for the failure of HAMP.  Failure to align the interests of all those who have some financial interest in a failing mortgage is clearly one of the reasons for HAMP’s lack of success.  The report said:

“Treasury has refused to specify meaningful goals to measure HAMP’s progress.  Treasury has also failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications”.

As of the end of October, HAMP had issued about 1.4 million temporary mortgage modifications, and only about 516,000 permanent modifications.  The number of trial or permanent modifications granted has been steadily falling since the Spring.  At the same time, redefaults on permanent modifications have been trending up since the beginning of the year, calling into question just how helpful these permanent modifications are.  The Committee concludes with this damning statement:

“Treasury’s reluctance to acknowledge HAMP’s shortcomings has had real consequences.  Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclousre mitigation may well be left unused.  As a result, and untold number of borrowers may go without help – all because Treasury failed to acknowledge HAMP’s shortcomings in time”.

The Treasury Department took issue with the report, calling it “somewhat unfair”.