U.S. House of Representatives
Committee on Oversight and Government Reform

Treasury Department’s
Mortgage Modification Programs:
A Failure Prolonging the Economic Crisis

Minority Staff Report
U.S. House of Representatives
111th
Congress
Committee on Oversight and Government Reform

INTRODUCTION

This report by the Committee on Oversight and Government Reform Republican Staff  tracks the history of the Obama Administration’s foreclosure mitigation programs, focusing on the Home Affordable Modification Program (HAMP), the most active and highest-profile of those programs.  HAMP is a $75 billion taxpayer-funded program that incentivizes mortgage companies to lower mortgage payments and renegotiate rates for homeowners facing foreclosure.  In return, The U.S. Department of the Treasury subsidizes the modifications through direct payments to servicers, lenders, and borrowers.

These federally-imposed mortgage modifications are a questionable use of taxpayer resources and they have failed to have a significant effect on rising foreclosure rates.  HAMP’s failure to assist anywhere near the 3-4 million distressed homeowners to whom the Administration promised aid demonstrates that technocratic tinkering is not an effective way to solve economic problems.  The only viable long-term solution to falling housing prices and rising foreclosures is a broad-based economic recovery.

In its current form, HAMP both hurts homeowners who might otherwise spend their trial-period mortgage payments on rent and also distorts the housing market, delaying any recovery.  Treasury owes American taxpayers and homeowners an honest explanation of HAMP’s ill-advised creation and ongoing mismanagement.

EXECUTIVE SUMMARY

HAMP has failed.  By every empirical measure, HAMP has failed.  In March 2009, the Administration promised it would “help up to 3 to 4 million homeowners avoid foreclosure.”  As recently as November 2009, Treasury suggested that HAMP would permanently modify mortgages for 375,000 borrowers by the end of the year.  But at the end of January 2010, the program had produced only about 116,000 permanent modifications – despite pressure from the Obama Administration on mortgage companies.  Meanwhile, a record proportion of U.S. mortgages are now in foreclosure.

HAMP may actually hurt more homeowners than it helps.  HAMP grants a trial modification while the homeowner’s paperwork is being examined.  After the homeowner’s eligibility has been confirmed – so long as mortgage payments have continued uninterrupted – the program grants a permanent modification.  Treasury’s own data suggests that hundreds of thousands of homeowners would receive temporary modifications but fail to qualify for permanent ones, thus ultimately leading to default. These homeowners would have been better off if they had defaulted earlier and spent the payments on more affordable housing options.

Treasury is trying to hide the failure of HAMP.  Despite repeated promises of transparency, Treasury has tried to cover up HAMP’s failure.  For example, Treasury stopped reporting a key number in January 2010, a move that effectively prohibited government watchdog groups and news organizations from calculating and reporting HAMP’s success rate to the public.

4closureFraud
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www.4closureFraud.org

Treasury Department’s
Mortgage Modification Programs:
A Failure Prolonging the Economic Crisis

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