WASHINGTON – The Treasury Department rushed out a major revamp of its foreclosure-prevention program in 2010, limiting the plan's ability to help people who are unemployed or owe more than their homes are worth, a government watchdog says.
Treasury's Hardest Hit Fund, which distributes money to state housing agencies for a range of programs, has been plagued by delays and disagreements with mortgage companies that must participate for the program to succeed, according to a report released Thursday by the Special Inspector General for the financial bailouts.
"Treasury's failure to set meaningful goals for the program leaves the agency vulnerable to criticism that it's trying to avoid accountability," said Christy Romero, Special Inspector General for the Troubled Asset Relief Program, in a statement.
The Hardest Hit Fund is part of the broader financial bailout known as the Troubled Asset Relief Program, a $700 billion bailout package approved at the peak of the 2008 financial crisis.
The fund was created to fix weaknesses in Treasury's earlier effort to prevent foreclosures. Critics had said the original program did not help unemployed people or people who owed more than their homes were worth.
Money from the Hardest Hit Fund is distributed to state housing agencies, which run a variety of aid programs for homeowners. The special inspector general's report says it has distributed only $217.4 million -- about three percent of the money set aside for the fund.
Of the money that was distributed, nearly all went to assist people who were unemployed and late on their mortgages. Almost none went to people who are "underwater" because their homes lost value after they took out big loans.
Unless it is overhauled, the program is likely to have limited impact on those homeowners, the report says.
The program was hindered from the start by Treasury's failure to gain support from the government-controlled mortgage giants Fannie Mae and Freddie Mac, the report says. Many big, private mortgage companies initially refused to participate because they wanted guidance from Fannie and Freddie, it says. The companies, called mortgage servicers, collect people's monthly payments and foreclose when they fall behind.
"Without large servicers, the (state programs) could not reach a large portion of struggling homeowners," the report says.
In a letter responding to the report, Treasury's top official overseeing the bailout programs says the special inspector general's "suggestions as to how the process might have been accelerated or improved are unworkable in practice."
For example, Treasury says, special inspector general labeled as a "delay" the time it took for states to set up their programs by hiring housing counselors, creating online tools and hiring people to review applications.
The program "is creating long-lasting foreclosure prevention capabilities," Treasury Assistant Secretary Timothy Massad says in the letter.
The letter notes that the program extends until 2017, so states have plenty of time to reach their targets for helping homeowners. It says Treasury worked hard to secure cooperation by Fannie, Freddie and the private mortgage companies, but does not have the authority to make them participate.