COP urges Treasury to release more data on Freddie, Fannie and HAMP

The government's TARP watchdog has called on the Treasury Department to release more data collected by Fannie Mae and Freddie Mac -- which were contracted to work on the government's mortgage modification program -- so that the public can determine whether the two government-sponsored enterprises are doing their job effectively.

In its latest report, which examines TARP contractors, the Congressional Oversight Panel urged Treasury to release more data collected by Fannie and Freddie so that Congress, TARP watchdogs and citizens can better evaluate the performance of the  Home Affordable Modification Program, or HAMP.

That program, designed to minimize foreclosures and keep people in their homes by modifying mortgage payments, has been marred by lost paperwork, inefficiencies and a rate of success that has generally disappointed outsiders.

The panel added that it appears that the GSEs "are not performing satisfactorily under their financial agency agreements," noting that the Government Accountability Office has recommended that Treasury develop written steps that detail how it will oversee and monitor their work on the HAMP program.

Treasury has $436.7 million worth of contracts with outsiders who help run TARP. Of that sum, $126.7 million is obligated to Fannie Mae, which administers the Home Affordable Modification Program, and $88.9 million is for Freddie Mac, which tracks mortgage servicers' compliance with the program.

The data collected by the two government-sponsored enterprises "are important in understanding the strengths and weaknesses of HAMP as well as particular areas in need of improvement," the COP wrote.

The panel especially urged Treasury to release audits performed by Freddie Mac that would show whether mortgage servicers are following HAMP guidelines, and whether Treasury and Freddie are enforcing the program's requirements.

 "Taxpayers should be able to see the consequences that result both from HAMP compliance and noncompliance," the report said. 

Failing to disclose those compliance reports could undermine the credibility of the program, according to the COP.

The panel's criticism of HAMP, Freddie, and Fannie won't end with today's report. Next month's report will examine the status of Treasury's foreclosure-mitigation programs, which means several of these issues will likely be thrown into the spotlight once again.

Their performance of Fannie and Freddie warrants particular scrutiny, the COP wrote, given the catastrophic failure of their own businesses. Fannie and Freddie were placed into government conservatorship in September 2008. The panel said Treasury has an obligation to explain why it believes the GSEs would be successful working on HAMP, given their own failures.

Treasury has said nobody but the GSEs had the operating capabilities, infrastructure, and resources to operate a foreclosure mitigation program on a national scale.

Fannie Mae is the program administrator for the Making Home Affordable program, which includes HAMP. It is tasked with reaching out to homeowners, enrolling mortgage servicers into the program, overseeing the customer service call center known as the HOPE Hotline and keeping records of modifications, among other things.

Freddie Mac, meanwhile, evaluates servicers' compliance with the program and works to provide quality assurance. Both perform the work at-cost with no markup, their representatives testified last month.

But the COP has suggested Fannie and Freddie's duties were not a simple extension of their existing work, and they may have lacked those capabilities before shoring up operations to take on the new job.

"These issues raise important questions as to whether Treasury's decision-making undermined the conservatorship process (and exposed the GSEs to additional risk) by transferring qualified personnel that could otherwise have focused their efforts on returning the GSEs to a sound and solvent condition," the panel wrote.

Fannie already has been responsible for one major foul-up. In its June HAMP report, it noted that less than 6 percent of homeowners who got HAMP aid were 60 days late on their mortgage payments six months after getting the aid. That turned out to be wrong and has caused a PR headache for both Treasury and Fannie. The actual figure was nearly 10 percent.

Treasury officials have conceded that they lacked the controls to validate Fannie's data.

"Treasury was not sufficiently cognizant of the importance of clear communication and robust monitoring and supervision of performance and compliance as it developed and implemented large scale programs under the TARP like HAMP, particularly early on in the process," the COP wrote.

The report also noted possible conflicts of interest in hiring the GSEs. According to data from August, 55.2 percent of the active permanent and trial modifications under the HAMP program are GSE mods. "That the majority of the modifications under HAMP involve mortgages that the GSEs hold or guarantee means that the potential exists for a substantial financial conflict of interest."

The panel said that if the GSEs are simply arms of the government, the conflicts "evaporate." But if they truly are independent companies, the conflicts are "vast and unmanageable."

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