Mortgage Modification Program Called A Failure

Launched in 2009 as an effort to stem the tidal wave of foreclosures, the government's Home Affordable Modification Program (HAMP) is being labeled a failure by the Congressional Oversight Panel.

The blame, the panel's report says, can be laid at the door of the U.S. Treasury Department.

In the eight months since the Panel's last report on HAMP, Treasury has made minor tweaks to the program, but the changes have not resolved the Panel's core concerns.

"The Panel now estimates that, if current trends hold, HAMP will prevent only 700,000 foreclosures -- far fewer than the three to four million foreclosures that Treasury initially aimed to stop, and vastly fewer than the eight to 13 million foreclosures expected by 2012," the report states.

While HAMP's most dramatic shortcoming has been its poor results in preventing foreclosures, the program has had other significant flaws, the Panel found. For example, despite repeated urgings from the Panel, Treasury has failed to collect and analyze data that would explain HAMP's shortcomings, and it does not even have a way to collect data for many of HAMP's add-on programs.

Further, Treasury has refused to specify meaningful goals by which to measure HAMP's progress, while the program's sole initial goal -- to prevent three to four million foreclosures -- has been repeatedly redefined and watered down, the Panel said.

Early warning

Many homeowners began to question whether the loan servicers actually wanted to help them get a modification. A report by the National Consumer Law Center suggested they actually didn't, pointing out that it was more profitable for a loan servicer if a home went to foreclosure than if the mortgage were modified.

In its report today, the Panal said Treasury has failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications. Treasury has essentially outsourced the responsibility for overseeing servicers to Fannie Mae and Freddie Mac, the Panel said.

But it went on to point out that Freddie Mac in particular has hesitated to enforce some of its contractual rights related to the foreclosure process, arguing that doing so "may negatively impact our relationships with these seller/servicers, some of which are among our largest sources of mortgage loans."

Treasury bears the responsibility

"Treasury bears the ultimate responsibility for preventing such conflicts of interest, and it should ensure that loan servicers are penalized when they fail to complete loan modifications appropriately," the Panel concluded.

The Panel said Treasury should enable borrowers to apply for loan modifications more easily -- for example, by allowing online applications. Treasury should also carefully monitor and, where appropriate, intervene in cases in which borrowers are falling behind on their HAMP-modified mortgages.