Government programs to fight the U.S. home foreclosure crisis look increasingly inadequate and should be reworked, expanded and supplemented with new ideas, a congressional watchdog said in a report on Friday.
With a foreclosure filing occurring every 13 seconds, the United States is mired in a housing slump that is destroying billions of dollars in property values and threatening to choke off the economy's recovery from a stubborn recession.
The foreclosure crisis has moved beyond subprime mortgages into the prime mortgage market, said the Congressional Oversight Panel for the Troubled Asset Relief Program, the $700 billion bailout launched under the Bush administration.
Rising unemployment, generally flat or even falling home prices, and impending mortgage rate resets threaten to cast millions more out of their homes, according to the report, which focused on the Treasury Department's efforts to curb foreclosures.
The panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact of foreclosures, and consider whether new programs or program enhancements could be adopted, it said.
The report was sharply critical of the larger of the government's two big programs designed to fight foreclosures.
It increasingly appears that the Home Affordable Modification Program, known as HAMP, which reduces monthly mortgage payments to help borrowers who are facing foreclosure keep their homes, is not equipped to deal with the changing nature of the housing crisis, the report said.
The government's other effort to stem foreclosures, the Home Affordable Refinance Program, or HARP, helps homeowners who are current on their mortgages but owe more than their homes are worth, get more affordable loans.
As of September 1, the watchdog report said, HAMP had helped arrange 1,711 permanent mortgage modifications, with an additional 362,348 borrowers in a three-month trial stage. HARP has closed 95,729 mortgage refinancings, it said.
The five-member watchdog panel -- sharply divided between Democrats and Republicans -- is headed by Elizabeth Warren, a Harvard Law School professor and outspoken TARP critic.
It issues monthly reports on a range of issues related to the program and the crisis it was meant to address. The October report was accompanied by a dissenting statement from panel member Representative Jeb Hensarling, a Republican from Texas.
A fair reading of the panel's majority report and my dissent leads to one conclusion -- HAMP and the administration's other foreclosure mitigation efforts to date have been a failure, Hensarling said in the statement.
While Hensarling reached a similar conclusion to the panel's report, he differed on the recommended action. Rather than calling for expansion of the government programs, he urged more basic changes by the Obama administration to its economic policy.
DOUBTS ABOUT MEETING GOALS
Treasury hopes to prevent as many as 4 million foreclosures through HAMP, but there is reason to doubt whether the program will be able to achieve this goal, the report said.
The problem is that HAMP is limited to certain types of mortgages and isn't prepared for a coming wave of foreclosures stemming from payment option adjustable rate mortgages (ARMs) and interest-only loan resets exceeding eligibility limits.
HAMP was not designed to address foreclosures caused by unemployment, which now appears to be a central cause of nonpayment, the report said.
It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now, it said.
HAMP's ramp-up has been outpaced by foreclosures. So even if the program hits its November 1 target of 500,000 trial modifications, this may not be large enough to slow down the foreclosure crisis, the report said.
Finally, the panel said it was unclear if HAMP modifications provide long-term help to homeowners whose payments may rise later. The result for many homeowners could be that foreclosure is delayed, not avoided, it said.
The report came a day after Treasury Secretary Timothy Geithner said more than half a million troubled homeowners are participating in the anti-foreclosure programs and that they were ahead of schedule.
(Editing by Leslie Adler)