Troubled Asset Relief Program
Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program
GAO-11-288, Mar 17, 2011
Additional Materials:
Contact:
(202) 512-6794
contact@gao.gov
Office of Public Affairs
(202) 512-4800
youngc1@gao.gov
Two years after the Department of the Treasury (Treasury) first made available up to $50 billion for the Making Home Affordable (MHA) program, foreclosure rates remain at historically high levels. Treasury recently introduced several new programs intended to further help homeowners. This report examines (1) the status of three of these new programs, (2) characteristics of homeowners with first-lien modifications from the Home Affordable Modification Program (HAMP), and (3) the outcomes for borrowers who were denied or fell out of first-lien modifications. To address these questions, GAO analyzed data from Treasury and six large MHA servicers.
The implementation of Treasury's programs to reduce or eliminate second-lien mortgages, encourage the use of short sales or deeds-in-lieu, and stimulate the forgiveness of principal has been slow and limited activity has been reported to date. This slow pace is attributed in part to several implementation challenges. For example, servicers told GAO that the start of the second-lien modification program had been slow due to problems with the database Treasury required them to use to identify potentially eligible loans. Additionally, borrowers may not be aware of their potential eligibility for the program. While Treasury recently revised its guidelines to allow servicers to bypass the database for certain loans, servicers could do more to alert HAMP first-lien modification borrowers about the new second-lien program. Implementation of the foreclosure alternatives program has also been slow due to program restrictions, such as the requirement that borrowers be evaluated for a first-lien modification even if they have already identified a potential buyer for a short sale. Although Treasury has recently taken action to address some of these concerns, the potential effects of its changes remain unclear. In addition, Treasury has not fully incorporated into its new programs key lessons from its first-lien modification program. For example, it has not obtained all required documentation to demonstrate that servicers have the capacity to successfully implement the newer programs. As a result, servicers' ability to effectively offer troubled homeowners second-lien modifications, foreclosure alternatives, and principal reductions is unclear. Finally, Treasury has not implemented GAO's June 2010 recommendation that it establish goals and effective performance measures for these programs. Without performance measures and goals, Treasury will not be able to effectively assess the outcomes of these programs. Treasury's data provide important insights into the characteristics of borrowers participating in the HAMP first-lien modification program, but data were sometimes missing or questionable. More homeowners have been denied or canceled from HAMP trial loan modifications than have received permanent modifications. To understand which borrowers HAMP has been able to help, GAO looked at Treasury's data on borrowers in HAMP trial and permanent modifications. These data showed that HAMP borrowers had reduced income and high debt, but the reliability and integrity of some of Treasury's information was questionable. GAO recommends that Treasury require servicers to advise borrowers to contact servicers about second-lien modifications and ensure that servicers demonstrate the capacity to successfully implement Treasury's new programs. GAO also recommends that Treasury consider methods to better capture outcomes for borrowers denied or canceled from HAMP first-lien modifications. Treasury acknowledged challenges faced by servicers in implementing the program, but felt that certain criticisms of MHA were unwarranted. However, we continue to believe that further action is needed to better ensure the effectiveness of these programs.
Status Legend:
Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
- In Process
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: As part of its efforts to continue improving the transparency and accountability of MHA, the Secretary of the Treasury should require servicers to advise borrowers to notify their second-lien servicers once a first lien has been modified under HAMP to reduce the risk that borrowers with modified first liens are not captured in the Lender Processing Services (LPS) matching database and, therefore, are not offered second-lien modifications.
Agency Affected: Department of the Treasury
Status: Open
Comments: In its 60-day response letter, Treasury stated that it continues to study the operational challenges associated with the recommendation, as well as how recently issued guidance would impact implementation. Treasury noted that it was also reviewing the anticipated benefit of notice to borrowers and the potential impact on borrowers who receive notification and are not ultimately eligible for modification. Treasury expects to have a more detailed response and course of action in June 2011 (follow-up in process).
Recommendation: As part of its efforts to continue improving the transparency and accountability of MHA, the Secretary of the Treasury should ensure that servicers demonstrate they have the operational capacity and infrastructure in place to successfully implement the requirements of the Second-Lien Modification Program (2MP), Home Affordable Foreclosure Alternatives (HAFA), and Principal Reduction Alternatives (PRA) programs.
Agency Affected: Department of the Treasury
Status: Open
Comments: In its 60-day response letter, Treasury stated that Freddie Mac in its capacity as the compliance agent for the Making Home Affordable program (MHA-C) uses information received from Fannie Mae in its capacity as the MHA program administrator regarding servicer readiness for various program elements as part of the compliance review scheduling and planning process. Treasury noted that during the normal course of a servicer review, part of the review is focused on the evaluation of new programs; such as HAPA, 2MP and PRA, as they are implemented by a servicer. According to Treasury, the specifics of these evaluations are designed to ensure adherence with the program guidelines, as well as the servicer's ability to meet those guidelines. Treasury stated that In instances where a servicer may have implementation challenges and is unable to meet implementation timelines or specific elements of the program, these matters are raised to OFS management and tracked to resolution by MHA-C to ensure that implementation occurs as soon as practicable.
Recommendation: As part of its efforts to continue improving the transparency and accountability of MHA, the Secretary of the Treasury should consider methods for better capturing outcomes for borrowers who are denied, canceled, or redefaulted from HAMP, including more accurately reflecting what actions are completed or pending and allowing for the reporting of multiple concurrent outcomes, in order to determine whether borrowers are receiving effective assistance outside of HAMP and whether additional actions may be needed to assist them.
Agency Affected: Department of the Treasury
Status: Open
Comments: In its 60-day response letter, Treasury stated that it had revised the survey it conducts of the 10 largest MHA servicers regarding the on the disposition of borrowers who have been denied HAMP modifications, or were cancelled from trials, to ask about dispositions of borrowers who are "in process" and "completed" to clarify their status. Treasury stated that it was important to note that survey data is generally collected for at least three months prior to publication to ensure the integrity of the data. Therefore, the changes made to the survey are not currently reflected in the data contained in the monthly MHA program performance reports. Treasury stated that it anticipates that it will be able to begin reporting using the revised survey data in Fall 2011. However, Treasury stated that did not intend to revise it survey to collect data on borrowers that are being considered for multiple outcomes. Treasury stated that while borrowers can be under evaluation for an alternative modification while in foreclosure, the greatest impact is the final determination (e.g., did the borrower receive an alternative modification or is the borrower in the foreclosure path).