The House Oversight and Government Reform Committee is investigating the Treasury Department's Making Home Affordable program amid concerns about its effectiveness and efficiency, Committee Chair Edolphus "Ed" Towns (D-N.Y.) announced over the weekend.
MHA's $75 billion Home Affordable Modification Program - which can tap up to $50 billion in funds from the Troubled Asset Relief Program - provides incentive payments to lenders who reduce mortgage payments for responsible borrowers.
Lenders get the incentives when the borrowers' mortgage payments fall to 31 percent of their monthly incomes or less.
The program, introduced in February 2009, seeks to bring relief to homeowners struggling to make mortgage payments, and to prevent communities from suffering the negative effects of foreclosures, such as depressed housing prices and increased crime.
But the program has come under recent scrutiny for failing to live up to those goals. In its most recent report, Treasury indicates that, as of December 2009, there were more than 850,000 active modifications in HAMP - but less than 67,000 are permanent modifications, with the remainder in trial periods.
The committee is concerned that some lenders have been too slow to modify their loans and are inconsistently applying the program, according to the announcement.
The most recent quarterly report from TARP's Special Inspector General found that, as of the close of 2009, Treasury had signed agreements with 102 lenders and allocated up to $35.5 billion under the HAMP program. Of that sum, just $15.4 million had been spent on incentives for 11,574 of 66,465 permanent modifications, with the remainder to be paid the following quarter.
"While I applaud Treasury's efforts, numerous concerns have been brought to my attention regarding the effectiveness and efficiency of the MHA program and the extent to which it has assisted struggling homeowners," Towns said in a statement.
Towns has requested data on the program from Treasury Secretary Timothy Geithner, and a response is expected by Feb. 18, according his committee's announcement. Among Towns' criticism is the department's refusal to clarify how it defines "net present value" - a determining factor of a homeowner's eligibly in the program. Towns also criticized the program for failing to require that lenders give homeowners an explanation for a denial, and for failing to establish an appeals process.
Relatively few of the eligible delinquent mortgages have translated into permanent modifications. For example, fewer than 2.5 percent of eligible mortgages at Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. have been granted permanent modifications.
Mortgage lenders have blamed the lack of permanent reductions on borrowers who are not filing the proper paperwork to convert trial modifications into permanent ones. In testimony to the House Financial Services Committee in December, Bank of America executive Jack Shakett highlighted the difficulty obtaining necessary documentation from borrowers, citing ineffective communication and misunderstandings about the program. Meanwhile, consumer advocates say problems with the program lie with the lenders, who are not abiding by its rules.
In his letter to Geithner, Towns requests a long list of information including data on trial modifications, data on permanent modifications, criteria used to determine an applicant's eligibility, and the "re-default rate" of borrowers after their mortgages have been modified. Towns also asks about the number of in-house and contract staffers administering the program and ensuring compliance.
Treasury spokeswoman Meg Reilly declined to comment on the investigation until the department formally responds to Towns.
In his Sunday appearance on ABC's "This Week," Geithner maintained that more than 750,000 people have seen homeowner relief in the program - a reference to the number of trial modifications. "Of course we're going to make sure that those temporary modifications translate into permanent modifications," he said.
"Those programs were enormously affective in helping ... pull a housing market that was in near collapse back to the point now where there are signs of stability," he added.
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