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SIGTARP Inspector General Highly Critical of Latest HAMP Initiatives

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By : John Smith    99 or more times read
Not everybody in Washington is in a mood to compliment HAMP unreservedly, and that includes influential SIGTARP Special Inspector General Neil Barofsky.

SIGTARP is Washington-speak for the modification to HAMP announced last month that aims to address negative equity issues and fumbling lender participation.

This time Barofsky lunched into highly critical mode on Tuesday as he unpacked the Governments foreclosure prevention program, in particular the new strategy to come to the aid of underwater and unemployed borrowers.

He was, however, diplomatic enough to concede that Treasury’s latest initiative is an important step forward – especially to the extent that it seeks to grow borrower participation and takes on the troublesome problem of assisted borrowers defaulting yet again as negative equity bites even deeper.

His hard-hitting report states that: “Treasury’s urgency in rolling out the new initiatives, laudable as it is, risks significant costs in the form of ill-defined goals, incomplete program guidelines, increased vulnerability to fraud, incentives that may prove ineffective, and the potential for arbitrary treatment of participating borrowers.” Barofsky’s counter suggestions include:

  • Transparent participation goals and identified likely costs for each subcomponent of HAMP

  • A unified set of property valuation requirements based on FHA standards for principal reductions and short sale programs, which will apply across the full spread of HAMP and will help counter fraud.

Barofsky is concerned that, because current rules don’t require formal valuation-appraisals before mortgage write down are sanctioned, this could leave a gap for dishonest borrowers to exploit. “No program of this type and scale can be considered well designed without robust protections of taxpayer funds against the predation of criminals,” his report added.

Another concern is current emphasis on voluntary participation by banks. Barofsky wants mandated principal reduction in terms of specific Treasury scenarios that will force fair play for all similarly distressed households and effectively manage borrower conflicts of interest. He’d also like to see the current three month waiver program for unemployed Americans extended.

Despite good intentions by Treasury to date, the Inspector General’s report is peppered with remarks like “very little progress” and “foreclosure crisis has not abated”. He also pointed out that the almost 2.8 million repossessions initiated during 2009 and 2010 were likely to “get worse.”

In the first three months of 2010 the nation saw 932,000 foreclosure filings, and bank foreclosures went up 35% year on year. HAMP has hardly scratched the surface with just 230,000 permanent mortgage modifications thus far.

Hopefully, Barkofsky’s closing comment “Until Treasury fulfills its commitment to provide a thoughtfully designed, consistently administered, and fully transparent program, HAMP risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results,” is still echoing in the White House and down the halls of Congress.
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