Neil Barofsky, the special inspector general for the troubled asset relief program (SIGTARP) testified in front of Congress on Wednesday about the progress of the bailout program. He said that TARP has by and large been a success, and that most of the money that was lent to corporations under the program has been paid back.
Despite the success of the overall program, he said that the government’s flagship foreclosure prevention plan, the Home Affordable Modification Program (HAMP), has been a “failure”. Barofsky said that the program has failed in large part because regulators are “afraid to rein in or impose penalties on the mortgage servicers” he added that the track record of those servicers “has been nothing short of abysmal”.
SIGTARP has been highly critical of HAMP in past reports, saying that the program
“The most specific of TARP’s Main Street goals, “preserving homeownership,” has so far fallen woefully short, with TARP’s portion of the Administration’s mortgage modification program yielding only 207,000 (out of a total of 467,000) ongoing permanent modifications since TARP’s inception, a number that stands in stark contrast to the 5.5 million homes receiving foreclosure filings and more than 1.7 million homes that have been lost to foreclosure since January 2009.”
Barofsky said that unless something is done to improve the effectiveness of the program, there will be increasing pressure to shut it down. Indeed, Rep. Jim Jordan and other House Republicans have introduced a bill that would end HAMP. The bill does not include a plan to replace HAMP with anything.
As far as I can tell, HAMP has largely been a failure because it fails to properly incentivize all parties that have a stake in a mortgage to work together to modify it rather than foreclose on it. A successful program will have to align the interests of investors, second lien holders, servicers, and borrowers in order to achieve mortgage modifications on a large scale.
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