WASHINGTON, July 24 (Reuters) – Nearly half of the mortgages
modified in 2009 under the Obama administration’s signature
homeowner rescue effort are in default again, according to a
report on Wednesday that raised concerns about the program’s
effectiveness.
The report from the Special Inspector General for the
Troubled Asset Relief Program (SIGTARP), the watchdog for the
aid effort, said 46 percent of the struggling homeowners who
received loan modifications in 2009 under the Home Affordable
Modification Program had redefaulted.
The Obama administration launched HAMP in 2009 to aid
struggling homeowners impacted by the housing boom and bust. The
program, extended in May by two years to help more struggling
borrowers keep their homes, draws from the Treasury Department’s
financial bailout fund and pays lenders and servicers to rewrite
loan terms for borrowers who can’t make their current mortgage
payments.
“This is a program where there’s not enough people being
helped,” Christy Romero, special inspector general for SIGTARP,
told Reuters. “Ultimately, the Treasury needs to make good on
its promise that TARP is not just a bailout for the largest
financial institutions but it will also help bailout
homeowners.”
While HAMP has helped about 865,100 homeowners avoid
foreclosure over the lifetime of the program through permanent
loan modifications, more than 306,000 homeowners had redefaulted
on their modified mortgages as of the end of April, the report
stated.
According to the inspector general, of the 865,100
homeowners in an active permanent HAMP modification, about 10
percent have missed one to two monthly mortgage payments and are
at risk of continuing the default trend.
The administration has refined the HAMP program since its
inception to broaden its reach, including by expanding
eligibility and increasing payments to mortgage companies that
lower borrowers’ monthly payments. When it was unveiled, the
administration estimated that the foreclosure prevention program
would offer a lifeline to as many as 4 million homeowners.
The inspector general urged the Treasury to try to determine
why borrowers were going off track and said it should require
mortgage servicers to look for early warning signals.
“Exactly why people are falling out of HAMP isn’t well
understood by Treasury,” said Romero. “If redefaults are
happening at an alarming rate, then you’ve got to stop that and
change the program somehow where you stop the trend.”
A Treasury official, who requested anonymity, told reporters
that redefault rates were moving lower.
“There will always be an inherent risk of homeowner
redefault rate in a program like this given the very difficult
circumstances that people who need modifications face,” the
official said. “The longer they are in there, the less likely
they are to redefault.”
The Treasury has set aside $38.5 billion of its TARP funds
to pay for the program, but of that amount it has only spent
$8.6 billion, or 22 percent.
