Treasury Advised to Revamp HAMP Policies and Rectify Confusion Created by Poor Communication

The Special Inspector General for the Troubled Asset ReliefrnProgram (SIGTARP) concludes its report to the Treasury Secretary with a numberrnof recommendations for improving the performance of the Home AffordablernModification Program (HAMP); suggesting changes to both policies andrnadministration.

One of the primary criticisms the report made of HAMP wasrnits failure to establish goals that were reasonable measures of what itrnactually was designed to accomplish.  Treasury'srnstated goal of three to four million offers to borrowers to modify their loansrnwas essentially meaningless, according to SIGTARP, because the program couldrnreach or even greatly exceed that goal while still actually helping only a fewrnhomeowners.  Instead, the reportrnrecommends that Treasury rectify the confusion that its own statements haverncaused with respect to its goals and expectations for the program.   “Treasury must unambiguously andrnprominently disclose its goals and estimates of how many homeowners willrnactually be helped…and report monthly on its progress to meeting thatrngoal.”

Beyond measuring modifications, the Department shouldrndevelop other performance metrics.  As anrnexample, the report suggests goals for servicers to meet in processing modificationsrnsuch as the time involved, the numbers of modifications relative to the numberrnof the servicers' loans that are in default or to foreclosures in general, orrnthe rate of borrowers falling out of the program.   “Havingrnspecific goals and metrics and comparing performance against those goals willrnbe essential in further refining the program and measuring its success.”

The program should greatly increase its marketing effortsrnincluding a sustained public service campaign to reach additional borrowers whornmight be helped by the program and to arm the public with complete and accuraterninformation about the program to avoid confusion and delay and prevent fraudrnand abuse.  The report had specifically criticizedrnthe earlier lack of marketing materials designed for its target audience, itsrnmeager attempts to gauge whether information was reaching troubled borrowers,rnand the absence of a public service television campaign.

The Department was advised to reconsider its policy thatrnallows servicers to substitute alternative forms of income verification basedrnon the servicers' subjective determination. rnThis makes it difficult to determine whether the rules are followed fromrnboth a compliance and oversight perspective. rnBecause servicers have both an economic and public relations incentive tornconvert as many trials to permanent modifications as possible, “thisrnprovision seriously risks being the exception that devours the rule, withrnservicers applying loose underwriting standards to generate higher conversionrnrates.”  The report states that, ifrnTreasury believes it is appropriate to expand the forms of income verification,rnit should do so in an open and transparent manner rather than simply deferring therndecision to the servicers.

The entire program structure should be reexamined to ensurernthat the program is adequately minimizing the risk of re-default.  “If HAMP ends up being a foreclosurernmitigation program that merely delays foreclosures rather than preventing them,rnthe program will be of questionable value, particularly in light of the hugerninvestment of taxpayer funds.”  Thernreport suggests that the program at present does not address the issues ofrnnon-mortgage debt, second liens on the property, interest rate resets after thernfive-year modification term ends, and the fact that many homeowners arernhopelessly underwater on their mortgages. rnThese conditions are all factors that can lead to re-default.

The report concludes by acknowledging that Treasury has donerna “considerable amount of work and made progress in establishing thernadministrative framework of the program” but warns that the Departmentrnmust promptly address the issues raised in the report.  “Failure to do so,” it says,rn”could result in a lost opportunity to make sure that the TARP programrnthat was specifically intended to benefit Main Street as well as Wall Streetrnsucceeds.”   

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