Jan 13, 2009
Something was missing from accounts of new efforts to target financial bailout funds to stop foreclosures — the fact that Congress is contemplating stronger language because the Treasury Department has ignored the mandate for homeowner relief in the original bailout legislation.
The Congressional Oversight Panel issued its second report (pdf) on the TARP bailout on Friday, January 9, and most coverage was buried in reports on proposals from the Obama economic team to improve the bailout’s administration. What coverage was there focused on the failure of Treasury to account for how TARP funds have been used.
That’s obviously important. But in fact the lion’s share of the report deals with whether bailout administrators had taken any steps whatsoever to comply with the mandate in the bailout legislation — it was added after the Bush administration’s first proposal went down in flames in the House — requiring “a plan that seeks to maximize assistance for homeowners.”
COP found no evidence of any steps taken by Treasury.
AP stories carried in the Chicago Tribune and Sun Times missed this entirely. A New York Times account noted it with one sentence: “The 45-page report also asserted that the Treasury, in defiance of what the panel claimed was Congress’s clear intent when it passed the bailout bill in October, had taken ‘no steps to use any of this money to alleviate the foreclosure crisis.'” The Wall Street Journal gave it more attention and noted, “The bipartisan panel reserved its most strident criticism for Treasury’s approach to dealing with the foreclosure crisis at the root of the ongoing economic turmoil.” Talking Points Memo highlighted it.
COP’s evaluation of Treasury inaction on foreclosures may be “strident criticism” or it may be outright ridicule, since the oversight panel takes the agency to the woodshed for citing a number of programs which preceded the bailout — or which the industry is sponsoring — in nonresponsive responses to questions about what the TARP program is doing.
The panel also takes the opportunity to highlight the weakness of Treasury and industry foreclosure prevention efforts:
Of the industry’s HOPE NOW program: nearly a quarter of loan modifications resulted in higher monthly payments, and another quarter in no change; most that decreased payments did so by less than $100 a month. “Not surprisingly, failure rates on modified loans are high. Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what ‘help’ means.”
Of a streamlined loan modification program announced in November, which Treasury hypes as “a major industry breakthrough,” COP notes that it involved adoption by Fannie Mae and Freddie Mac “of a standard that leading elements of the mortgage servicing industry have already abandoned as resulting in unsustainable modifications….For most loans, Treasury’s ‘breakthrough’ standard is of no value.”
COP also notes that the FHA Hope for Homeowners program “was initially predicted to help 400,000 families, but it has received only 357 applications, none of which have been processed” while “FHASecure was predicted to help 240,000 homeowners, but it was shut down at the end of 2008 after helping only 4,100 delinquent borrowers.”
For the record, the report includes the language from the bailout legislation, passed by Congress and signed by the President — the language that we were assured meant help was coming for Main Street:
“To the extent that the Secretary acquires mortgages, mortgage backed securities, and other assets secured by residential real estate, including multifamily housing, the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.”
Now House Financial Services chair Barney Frank is sponsoring legislation that would require that at least $40 billion of TARP funds be used for foreclosure mitigation. And he’s specifying a March 15 deadline for a plan and an April 1 deadline to begin disbursing the funds.