Forbes - U.S. Program To Avert Foreclosures Called A Failure

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A U.S. Treasury-led effort to slow the rate at which distressed mortgage-holders are being thrown out of their homes was branded "an abject failure" on Tuesday by lawmakers.

The scathing review of Treasury's Home Affordable Modification Program, or HAMP, brought fresh promises from a senior Treasury official to get tough with banks but didn't soothe members of the House Financial Services Committee who said they are besieged by complaints.

"There is great frustration at the failure of the government to come to grips with the foreclosure issue," committee chairman Barney Frank of Massachusetts said at the start of a lengthy hearing that also heard representatives from banks and regulatory agencies.

The $75-billion HAMP program is intended to bring troubled borrowers together with lenders to work out an agreement for modifying loans so that homeowners can lower their payments and stay in their homes.

Lawmakers say the rate at which people are able to move from "trial" modifications to permanent ones is too slow, partly because of banks' paperwork demands as well as poorly trained personnel who lose documents, and general foot-dragging by lenders who don't want to write down loans.

As a result, foreclosures keep rising and are expected to number millions more in coming years, which Frank said was a painful cost for homeowners to bear because of a financial crisis that stemmed partly from irresponsible lending.

"Foreclosures create concentric circles of harm," he said. "Slowing down the rate of foreclosures is very important."

Anger at Treasury's efforts to help so far was bipartisan.

"Government taxpayer-funded foreclosure mitigation efforts have been an abject failure," Republican Congressman Jeb Hensarling of Texas said. "Throwing more money at programs that don't work is absolutely insane."

Treasury's assistant secretary for financial stability, Herbert Allison, testified that he felt HAMP was helping and said 375,000 people will complete trial loan modifications by year-end. But he conceded the number moved to permanent on modifications with lower monthly payments was relatively low.
Under questioning, Allison put much of the blame on banks

"I think banks have a long way to go to get up to their full potential to help alleviate this problem," he said. "We're not satisfied by any means.

His remarks didn't mollify committee members, who wanted to know why the Obama administration was ready to offer taxpayer funds to banks to help them during the financial crisis but now only cajoles them to help people who face losing their homes.

"We're moving to the point where we're going to discipline banks if they don't perform better than they are today," Allison said. "As we move forward we're putting them on notice and then we will exact penalties."

Last week, Assistant Treasury Secretary Michael Barr raised the possibility of fining or imposing sanctions on banks unless they speed up efforts to give homeowners a permanent break on monthly payments.

But Barr, speaking on a conference call with reporters, refused to specify how large any fines might be or to give examples of potential sanctions that banks might face.

At Tuesday's hearing, a Bank of America executive said it was working with Treasury to prevent foreclosures in its 14-million-strong mortgage servicing portfolio and was well aware of problems.

"In over 100,000 calls a day, we hear from customers -- their concerns and frustrations," said Jack Schakett who is in charge of credit loss mitigation for the bank.

He said the bank was working with Treasury to expand HAMP in order to help unemployed homeowners avoid foreclosure through forbearance programs and to help lower-income people whose debt-to-income ratio is below 31 percent.

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