Federal programs designed to help homeowners facing foreclosure are spending less than anticipated, according to testimony presented before the House Financial Services Committee by Katie Jones, analyst of housing policy at the Congressional Research Service (CRS), an office within the Library of Congress.
‘While Treasury anticipates that the entire $45.62 billion currently designated for the three housing programs that use [Troubled Asset Relief Program] funds will be spent, a November report from the Congressional Budget Office estimates that only $12 billion in TARP funds will ultimately be spent on these programs,’ Jones reported.
Jones noted that as of Feb. 25, $1 billion in Home Affordable Modification Program (HAMP) funding was disbursed, primarily as ‘incentive payments to mortgage servicers, borrowers and investors in connection with first-lien modifications’ for mortgages not connected to the government-sponsored enterprises. She noted that servicers and borrowers could continue to receive HAMP-based incentives even if the program is discontinued as part of the current attempts to reduce the federal deficit.
‘Mortgage servicers can receive 'pay-for-success' incentive payments of $1,000 per year for up to three years, and borrowers can receive pay-for-success incentive payments of $1,000 per year for up to five years in the form of principal reduction, if the borrower remains current on the modified mortgage payments,’ Jones said. ‘In other words, certain HAMP incentive payments are designed to be paid based on the future success of servicer actions in the past. For this reason, Treasury may continue to have a contractual obligation to pay servicers for their past performance under (or reliance on) the HAMP program, even if new legislation is enacted to terminate the program before its currently scheduled end date.’
As for other foreclosure programs, Jones noted that the Federal Housing Administration Short Finance program, which was designated to receive up to $8.12 billion, has only refinanced 40 loans since the program began in September 2010, while the Emergency Homeowners' Loan Program, which was part of the Dodd-Frank Act, has yet to take applications. She noted that $3.9 billion was provided to fund Section NSP-1 of the Neighborhood Stabilization Program, which was established in the Housing and Economic Recovery Act of 2008, but this program section has only assisted 19,189 housing units as of Jan. 13.