Treasury report lowers estimate of home borrowers helped by key program
Wednesday, March 24, 2010
The Obama administration's marquee foreclosure-prevention program is on course to help far fewer homeowners than previously expected, according to a government watchdog's new report.
The Treasury Department initially said the program, known as Making Home Affordable, would reach as many as 4 million struggling borrowers. But Neil Barofsky, special inspector general for the Troubled Assets Relief Program, said in a report issued Tuesday that Treasury now expects only 1.5 million to 2 million homeowners to get mortgage relief.
In the past few weeks, Treasury has said that the higher figure refers to the number of homeowners who would receive offers of interim loan modifications, not necessarily the total who would complete the process and receive permanent loan modifications. Barofsky expressed skepticism that offering modifications was a meaningful goal.
"Many of Treasury's prior statements about the program have strongly suggested that [it] would result in 3 to 4 million permanent modifications, not merely offers for trial modifications," the report said.
The Obama administration launched the program, which pays lenders to modify borrowers' mortgages by lowering their payments, a year ago. It was to tap $50 billion from TARP and an additional $25 billion from Fannie Mae and Freddie Mac, the mortgage financing companies. But so far, fewer than 200,000 borrowers have received permanent loan modifications. In a recent report, the Congressional Budget Office said that only $31 million has been spent, and it now anticipates that only about $20 billion of the TARP funds allocated would be used.
The inspector general's report warned that many borrowers are at risk of redefaulting on their mortgages even after receiving help under the federal program; many owe significantly more than their homes are worth, or have second mortgages or other debts.
In a response included in the report, the Treasury said the program's success should not be measured solely by how many borrowers receive loan modifications. The administration is also pursuing other strategies to avoid foreclosures, such as encouraging short sales in which borrowers sell their homes for less than what they owe.
The program "should be measured by how many eligible homeowners are able to are able to avoid the pain and stigma of foreclosure by reducing their mortgage payments to affordable levels while either remaining in their homes or transitioning with dignity to more suitable housing," said Herbert M. Allison, assistant Treasury secretary for financial stability. "The number of permanent modifications is one element, but not the only element of gauging the success."