TARP Watchdog Suggests HAMP Improvements

vernment Accountability Office (GAO) has submitted to the Treasury Department recommendations on how the Home Affordable Modification Program (HAMP) can be made more transparent and accountable. In its congressional [link=http://www.gao.gov/new.items/d09837.pdf][u]report[/u][/link], the GAO says the Treasury's estimate of how many borrowers will benefit from HAMP ‘reflects uncertainty created by data gaps and the need to make numerous assumptions, and this projection may be overstated.’ The TARP watchdog recommended the following specific actions for the Treasury to take: [list]consider methods for monitoring compliance with and the effectiveness of its counseling requirement; *reevaluate the basis and design for the Home Price Decline Protection (HPDP) subprogram; *regularly update assumptions and projections underlying the estimated number of borrowers likely to be helped by HAMP; *staff vacant positions within the Homeownership Preservation Office and evaluate its staffing levels and competencies; *finalize a comprehensive system of internal control over HAMP; and *systematically assess a servicer's capacity to meet HAMP's requirements during program admission.[/list] The GAO says HAMP expenditures, unlike other TARP programs, are not investments but, rather, expenditures that will not be recouped. "For this reason, a system of effective internal control over program expenditures is of critical importance," the office says. The Treasury has indicated that it will not systematically monitor whether borrowers who are told they must receive counseling actually receive it. The reluctance is based, in part, on not wanting to deny a loan modification to borrowers that have demonstrated their ability to make modified payments, the GAO reports. Regarding HPDP, which was announced in May but is not yet operational, the GAO says Treasury officials have not developed estimates of the number of mods that would result from the subprogram. In some cases, HPDP payments are expected to go to modifications that would likely have been made without the HPDP incentives, which are meant to motivate investors to modify mortgages in areas experiencing steep home price declines. The GAO additionally suggests that the Treasury's assumptions for borrower participation may be inflated. "Treasury's projection of a participation rate of 65 percent of the target group – borrowers who were at least 60 days delinquent in their loans or in imminent danger of default – which is based roughly on a 90 percent servicer representation rate and a 70 percent borrower response rate, may be high," the office's report says. The Federal Deposit Insurance Corp.'s IndyMac Bank program, which the GAO says is the mod program most similar to HAMP, has had a peak borrower response rate of only 50%. SOURCE: Government Accountability


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