Lawmakers grill Treasury official on mortgage modification program

Lawmakers spent nearly four hours Thursday examining problems facing the Home Affordable Modifications Program, with some suggesting that the intiative has already failed.

The House Oversight Committee hearing came days after a report from the TARP Special Inspector General that highlighted the Treasury Department's struggle to make a significant dent in the number of households facing foreclosure.

 "We need to make a change," said Rep. Darrell Issa (R-Calif.), the committee's ranking member. "It is a program that, whether you voted for TARP or not, must be made to work and must be made to work dramatically better than it is."

The $75 billion program is intended to help homeowners avoid foreclosure by providing financial incentives to lenders who restructure mortgages to make payments more affordable. More than a year after Treasury launched HAMP, just 170,207 permanent modifications have been made, according to its latest figures.

Issa called Treasury's efforts to prevent foreclosures through HAMP  "a promise ... that is not being kept."

He reiterated common complaints about the program, including the number of months some homeowners have spent in trial modifications without learning whether they will ever gain permanent status. Due to delays in the program, some people may be continuing to make mortgage payments when it would be better for them to seek more affordable housing, he added.

Others on the committee chided Treasury for trying to "move the goal post." The administration has said it hopes to help up to 4 million people avert foreclosure. But Herbert Allison, who oversees TARP for the Treasury, testified that his department's goal is actually to extend up to 4 million offers for trial modifications.

SIGTARP Neil Barofsky reiterated many of the points he made in a report on the program released earlier this week, saying that "this goal is essentially meaningless." He also cited backlogs and inefficiencies within the program that are hurting its effectiveness.

Borrowers also are being treated inconsistently by mortgage servicers participating in the program, said Gene Dodaro, acting comptroller general of the Government Accountability Office.

"Treasury needs to put out metrics upon which we can measure their performance," added Mark Calabria of the libertarian Cato Institute. He also called on the Treasury Department to release a clear cost-benefit analysis of the program.

Calabria suggested that the program has done more harm than good for borrowers - a sentiment some of the committee members seemed to echo. Patrick McHenry (R-N.C.) called the program "a failure and a waste of taxpayer dollars," while Rep. Jackie Speier  (D-Calif.) said "the program doesn't work."

Rep. Elijah Cummings (D-Md.) spoke in more tempered terms, telling Allison, "I've got a feeling you've done a lot but not enough."

Allison conceded that "more work needs to be done" to avert foreclosures. "I think certainly we've seen a lot of frustration with this program since its inception," he said.

He added: "We did not fully envision the challenges that we would encounter."

Treasury has been criticized for allowing homeowners to apply for modifications by verbally stating their income without documentation. That caused trouble for servicers, who often found discrepancies between stated and actual income.

Allison said Treasury originally allowed verbal statements in an effort to enroll as many people in the program as possible, but Issa suggested it was a misguided political decision designed to make it appear as though that the program was working more effectively than it actually was.

Allison said Treasury is negotiating with other banks to offer a program similar to the one announced by Bank of America Corp. this week in which it will work to forgive some of the principal amount of sub-prime mortgages to encourage customer's participation in HAMP. The program was widely praised by committee members.

Allison also said Treasury is developing a modification program for second liens called 2MP that could also help reduce principal owed. He said that Bank of America, Citigroup Inc., JPMorgan Chase & Co., and Wells Fargo & Co. have agreed to participate.