The continuous flow of funds is a remnant of the $700 billion bailout effort, known as the Troubled Asset Relief Program or TARP, put in place during the financial crisis. Some of that money, about $28 billion, was carved out to help distressed homeowners by paying banks to lower their interest rates and monthly payments.
The program, the Home Affordable Modification Program, has undergone several revamps over the last few years and fallen short of helping the 3 million to 4 million homeowners the Obama administration initially hoped. But it continues to operate -- HAMP will accept its last homeowner application at the end of this year -- and big banks continue to be paid based on how many homeowners they help.
At least the money being paid to the banks is making it more likely that homeowners will qualify for help with their mortgages, said Alys Cohen, staff attorney for National Consumer Law Center. “To some extent, companies are being paid for what they should have been doing anyway,” said Cohen. “A large portion of the bailout money didn’t go to helping individuals or communities, but this money does.”
But the stream of cash for the big banks is worrisome to Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, the chief watchdog of the financial crisis-era bailouts. Many of the banks have repeatedly broken the rules of the program, including kicking homeowners out unfairly or making it too difficult to apply for the help.
“Why are we paying for nonperformance?...At what point is somebody going to say enough is enough?” said Christy Goldsmith Romero, special inspector general with the Troubled Asset Relief Program, who investigates crime at companies that received taxpayer bailout funds.
“If a homeowner doesn’t follow the rules in HAMP they get knocked out of the program. If a bank doesn’t follow they still get paid by Treasury.”
The banks and the Treasury Department, which oversees HAMP, defend the program. The "error rates" have fallen significantly, Mark McArdle, deputy assistant secretary for financial stability, said in a statement.
Companies are required to fix any problems detected and “TARP funds are recovered as appropriate,” the Treasury Department said in a letter responding to SIGTARP’s critique. “We also have withheld financial incentives from servicers that performed poorly until they made specified improvements,” the letter said.
The SIGTARP report is "inaccurate," Wells Fargo said in a statement. "We respond quickly to correct any errors we identify or that are brought to our attention." Bank of America said it has helped more than 2.1 million customers avoid foreclosure through HAMP and other programs. "These initiatives continue to help those who face financial difficulty today, even as the economy has recovered overall," the bank said in a statement.
JPMorgan, which has more than $2 trillion in assets, says most of the money it receives through the program is passed on to investors and homeowners who receive incentives for paying their mortgages on time.
The biggest beneficiary of the housing program, by far, is little-known financial company Ocwen. The Florida company services millions of mortgages for investors, including collecting payments from homeowners. It has already received $2.9 billion from the HAMP program and over the next seven years, it could receive $2.6 billion more.
"We are extremely proud of our performance and our success in helping struggling borrowers remain in their homes," Ocwen said in a statement.