The Treasury is committed to spending the full $50 billion in bailout funds it budgeted for mortgage modifications but will consider changes to make the program more effective, a senior Treasury official said on Thursday.
Herbert Allison, Treasury assistant secretary for financial stability, in testimony prepared for delivery to the House of Representatives Oversight and Government Reform Committee, said the Treasury would continually evaluate expenditures in its Home Affordable Modification Program, or HAMP.
Treasury set aside $50 billion in TARP funds for HAMP. We remain committed to stabilizing the housing market and using the full $50 billion budget to reach and assist at-risk homeowners, Allison said in his remarks, a copy of which was obtained by Reuters.
Allison said the HAMP program, despite widespread criticism that it has been ineffective in stemming a rising tide of U.S. home foreclosures, was on track to meet its stated goals of offering trial modifications for 3 million to 4 million homeowners by the end of 2012. It has more than 1 million trial modifications now underway.
The special inspector general for the Treasury's Troubled Asset Relief Program this week said in a report that Treasury oversold the program and it is likely to be a failure by the time it wraps up. The Obama administration's definition of success for the program is essentially meaningless, because offers of modifications are far different than actual permanent modifications the inspector general, Neil Barofsky wrote.
The modification program is part of a $75 billion Obama administration effort to bolster housing markets. Another $25 billion in modification and refinancing costs is being borne by government controlled finance entities Fannie Mae
The modifications, once in place, effectively reduce the loan's interest rate to cut monthly payments for borrowers to around 31 percent of their income.
Allison said the Treasury would evaluate whether expenditures in HAMP's main categories, including incentives to loan servicers and borrowers for first and second lien modifications, and payments to servicers to help offset home price declines, would meet original budget targets.
As we determine we can implement productive innovation, we will move aggressively to implement program changes and expansions to assist at-risk homeowners both inside and outside the HAMP program, Allison said in his testimony.
He noted that much of the Treasury HAMP incentive payments are back-end loaded. Through February, it has made only $57 million in up-front payments related to permanent modifications. However, over the five-year life of these same modifications, the Treasury will pay out $775 million in additional incentives
to homeowners, investors and servicers.
Allison also told lawmakers about new Treasury guidance to loan servicers on how they must deal with troubled borrowers. Many borrowers seeking modifications from their servicers have become confused and driven to despair when they receive foreclosure notices from these same firms.
The new guidance would prohibit servicers from starting the foreclosure process on all loans potentially eligible for modifications unless the borrower does not respond to a solicitation or fails to meet the program's requirements.
(Reporting by David Lawder; Editing by Theodore d'Afflisio)