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United States Government Accountability Office: 


Before the Subcommittee on Insurance, Housing, and Community 
Opportunity, Committee on Financial Services, House of Representatives: 

For Release on Delivery: 
Expected at 2:00 pm. EST:
Wednesday, March 2, 2011: 

Troubled Asset Relief Program: 

Actions Needed by Treasury to Address Challenges in Implementing 
Making Home Affordable Programs: 

Statement of Mathew J. Scirč, Director:
Financial Markets and Community Investment: 


Chairman Biggert, Ranking Member Gutierrez, and Members of the 

I am pleased to be here today to discuss our work on the Making Home 
Affordable (MHA) program, including the Home Affordable Modification 
Program (HAMP). Since the Department of the Treasury (Treasury) first 
announced the framework for its MHA program over 2 years ago, the 
number of homeowners facing potential foreclosure has remained at 
historically high levels. HAMP, the key component of MHA, provides 
financial incentives to servicers and mortgage holders/investors to 
offer modifications on first-lien mortgages. The modifications are 
intended to reduce borrowers' monthly mortgage payments to affordable 
levels to help these homeowners avoid foreclosure and keep their homes. 

Since HAMP's inception, concerns have been raised that the program is 
not reaching the expected number of homeowners. In two prior reports, 
we looked at the implementation of the HAMP first-lien modification 
program, noted that Treasury faced challenges in implementing it, and 
made several recommendations intended to address these challenges. 
[Footnote 1] In addition, our ongoing work examines the extent to 
which additional MHA programs have been successful at reaching 
struggling homeowners, the characteristics of homeowners who have been 
assisted by the HAMP first-lien modification program, and the outcomes 
for borrowers who do not complete HAMP trial or permanent 
modifications. These programs include the Second-Lien Modification 
Program (2MP) for those whose first liens have been modified under 
HAMP, the Home Affordable Foreclosure Alternatives (HAFA) program for 
those who are not successful in HAMP modifications, and the Principal 
Reduction Alternatives (PRA) program for borrowers who owe more on 
their mortgages than the value of their homes. 

My statement is based on the report on HAMP that we issued in June 
2010, as well as on preliminary observations from our ongoing 
work.[Footnote 2] Specifically, this statement focuses on (1) the 
extent to which HAMP servicers have treated borrowers consistently and 
the actions that Treasury and its financial agents have taken to 
ensure consistent treatment; (2) the status of Treasury's second-lien 
modification, foreclosure alternatives, and principal reduction 
programs; (3) the characteristics of borrowers who received HAMP 
modifications; and (4) outcomes for borrowers who are denied or fall 
out of HAMP trial or permanent first-lien modifications. 

To examine these questions, we spoke with and obtained information 
from 10 HAMP servicers of various sizes who collectively had been 
designated 71 percent of the TARP funds allocated to participating 
servicers. We visited 6 of them for our June 2010 report. In addition, 
for our ongoing work, we spoke with and obtained data from 6 large MHA-
participating servicers. We reviewed HAMP program documentation issued 
by Treasury, including supplemental directives for the first-lien 
program and announcements of new TARP-funded homeowner assistance 
programs. To determine the key elements needed to ensure program 
stability and adequate program management, we compared documents 
obtained from Treasury regarding HAMP program governance and internal 
controls to the Government Performance and Results Act of 1993 (GPRA) 
and the Standards for Internal Control in the Federal Government. 
[Footnote 3] We also analyzed loan-level data from Treasury's HAMP 
database, which included data reported by servicers on borrowers 
evaluated for HAMP participation through September 30, 2010, to 
analyze the characteristics of borrowers who received HAMP 
modifications, were canceled from HAMP trial modifications, or 
redefaulted from permanent HAMP modifications. We coordinated our work 
with other TARP oversight entities, including the Congressional 
Oversight Panel, the Office of the Special Inspector General for TARP 
(SIGTARP), and the Financial Stability Oversight Board. 

The work on which this testimony is based was performed in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 


In June 2010, we reported on several inconsistencies in the way 
servicers treated borrowers under HAMP that could lead to inequitable 
treatment of similarly situated borrowers. These inconsistencies 
involved how servicers solicited borrowers for the program, how they 
evaluated borrowers who were not yet 60 days delinquent on their 
mortgage payments, and how they handled borrower complaints.[Footnote 
4] In addition, we noted that while Treasury had taken some steps to 
ensure servicer compliance with program guidance, it had not yet 
finalized consequences for servicer noncompliance. We made eight 
recommendations to improve the transparency and accountability of HAMP 
in June 2010. Treasury stated that it intended to implement some of 
the recommendations, but little action has been taken to date. 

Further, as part of our ongoing work, we identified several 
implementation challenges that had slowed implementation of newer MHA 
programs, specifically 2MP, HAFA, and the Principal Reduction 
Alternative (PRA). For example, we found that servicers experienced 
difficulties in using a required database to identify borrowers who 
might be eligible for 2MP, contributing to a slow start for this 
program. We found that borrowers who were in HAMP trial or permanent 
modifications tended to share certain characteristics, such as reduced 
income and having high debt levels, and that those who were canceled 
from trial modifications or redefaulted from permanent modifications 
tended to be further into delinquency at the time of their 
modifications. Lastly, we found that many borrowers who were denied or 
fell out of HAMP modifications had been able to avoid foreclosure to 
date. But weaknesses in how Treasury reports the disposition paths, or 
outcomes, for these borrowers make it difficult to understand exactly 
what has happened to these homeowners. 


In March 2009, Treasury issued the first HAMP guidelines for modifying 
first-lien mortgages in an effort to help homeowners avoid 
foreclosure. The goal of the first-lien mortgage modification program 
is to reduce struggling homeowners' mortgage payments to more 
affordable levels--specifically to 31 percent of the borrower's 
income. To reduce mortgage payments, servicers may modify the loan by 
lowering the interest rate, extending the amortization period, or 
forbearing principal. According to Treasury officials, the program was 
intended to offer reduced monthly payments to up to 3 to 4 million 

Through December 2010, there were a total of 143 active servicers 
under the TARP-funded portion of HAMP. Through December 2010, over 1.7 
million HAMP trial modifications had been offered to borrowers, nearly 
1.5 million of which had begun HAMP trial modifications.[Footnote 5] 
Of the trial modifications begun, approximately 152,000 were active 
trial modifications, and roughly 522,000 were active permanent 
modifications. Approximately 735,000 trial modifications and around 
58,000 permanent modifications had been canceled (fig. 1). As of 
December 31, 2010, $1 billion in TARP funds had been disbursed for 
TARP-funded housing programs, of which roughly $840 million was 
disbursed to servicers for HAMP-related activity. Most of the 
disbursements to date have been made for the first-lien modification 

Figure 1: GSE and Non-GSE HAMP Trial and Permanent Modifications Made 
and Canceled Each Month, through December 2010: 

[Refer to PDF for image: multiple line graph] 

Date: May 2009 and before; 
Trials started: 55,381. 		 

Date: June 2009; 
Trials started: 109,296. 		 

Date: July 2009; 
Trials started: 119,683. 			 

Treasury announces goal of 500,000 trials by November 1, 2009. 

Date: August 2009; 
Trials started: 144,326. 		 

Date: September 2009; 
Trials started: 134,400; 
Permanents started: 4,742. 

Date: October 2009; 
Trials started: 159,078; 
Permanents started: 10,907. 

Date: November 2009; 
Trials started: 114,923; 
Permanents started: 15,775. 

Start of Treasury's Conversion Campaign: 

Date: December 2009; 
Trials started: 118,153; 
Permanents started: 35,514. 

Date: January 2010; 
Trials started: 94,189; 
Permanents started: 50,364; 
Trials canceled: 60,476; 
Permanents canceled: 1,005. 

Date: February 2010; 
Trials started: 87,475; 
Permanents started: 52,905; 
Trials canceled: 28,187; 
Permanents canceled: 494. 

Date: March 2010; 
Trials started: 70,193; 
Permanents started: 60,594; 
Trials canceled: 66,510; 
Permanents canceled: 1,380. 

Date: April 2010; 
Trials started: 47,740; 
Permanents started: 68,291; 
Trials canceled: 122,467; 
Permanents canceled: 865. 

Date: May 2010; 
Trials started: 25,798; 
Permanents started: 47,724; 
Trials canceled: 152,056; 
Permanents canceled: 2,613. 

Date: June 2010; 
Trials started: 21,422; 
Permanents started: 51,205; 
Trials canceled: 91,118; 
Permanents canceled: 2,466. 

Date: July 2010; 
Trials started: 23,958; 
Permanents started: 36,695; 
Trials canceled: 96,025; 
Permanents canceled: 4,089. 

Date: August 2010; 
Trials started: 22,531; 
Permanents started: 33,342; 
Trials canceled: 46,699; 
Permanents canceled: 6,209. 

Date: September 2010; 
Trials started: 30,158; 
Permanents started: 27,840; 
Trials canceled: 36,386; 
Permanents canceled: 10,069. 

Date: October 2010; 
Trials started: 29,124; 
Permanents started: 23,750; 
Trials canceled: 19,563; 
Permanents canceled: 7,116. 

Date: November 2010; 
Trials started: 28,856; 
Permanents started: 29,972; 
Trials canceled: 9,622; 
Permanents canceled: 8,666. 

Date: December 2010; 
Trials started: 29,764; 
Permanents started: 30,030; 
Trials canceled: 5,400; 
Permanents canceled: 13,048. 

Source: GAO analysis of Treasury data. 

[End of figure] 

In addition to first-lien modifications, Treasury has announced a 
number of TARP-funded housing programs, including those for modifying 
second liens held by borrowers with first-lien modifications under 
HAMP, reducing principal, offering temporary forbearance for 
unemployed borrowers, and providing alternatives to foreclosure (see 
table 1). At the current time, with the exception of the Housing 
Finance Agency (HFA) Hardest-Hit Fund, the cutoff date for borrowers 
to be accepted into TARP-funded programs is December 31, 2012, and 
disbursements of TARP funds may continue until December 2017. The 
cutoff date and last possible disbursement date for the HFA Hardest-
Hit Fund has yet to be determined. 

Table 1: Status of TARP-Funded Housing Programs as of December 2010: 

Program: HAMP First-Lien Modification; 
Program description: First-lien loan modifications; 
Program status: 
* Announced in March 2009; 
* Implemented in April 2009; 
* 143 active non-GSE servicers; 
* More than 1.5 million trials started--522,000 active permanent 
modifications, 152,000 active trials, and 735,000 cancellations; 
* Over $827 million disbursed in incentive payments. 

Program: 2MP; 
Program description: Second-lien loan modifications for HAMP first-
lien borrowers; 
Program status: 
* Announced in March 2009; 
* Implemented in March 2010; 
* 17 servicers have signed agreements; 
* $2.9 million in incentive payments made. 

Program: HAFA; 
Program description: Incentives for short sales or deeds-in-lieu of 
Program status: 
* Announced in March 2009; 
* Implemented in April 2010; 
* $9.5 million in incentive payments made. 

Program: HFA Hardest-Hit Fund; 
Program description: Funding for state housing finance agencies in the 
18 states and Washington, D.C., hardest hit by the foreclosure crisis; 
Program status: 
* Announced in February and March 2010; 
* Implementation varies by state; 
* $7.6 billion designated for 19 HFAs. 

Program: PRA; 
Program description: Principal reduction for HAMP-eligible borrowers 
with high loan-to-value ratios; 
Program status: 
* Announced in March 2010; 
* Implemented October 2010. 

Program: HAMP Unemployed Borrowers; 
Program description: Temporary principal forbearance for unemployed 
Program status: 
* Announced in March 2010; 
* Implemented July 2010; 
* No expected TARP funds. 

Program: FHA Refinance; 
Program description: Principal reduction and loan refinancing into an 
FHA loan; 
Program status: 
* Announced in March 2010; 
* Implemented September 2010; 
* $11 billion designated. 

Source: Treasury. 

[End of table] 

Servicers Have Been Inconsistent in Soliciting and Evaluating HAMP 
Borrowers and More Treasury Action Is Needed to Ensure Equitable 
Treatment of Borrowers with Similar Circumstances: 

Although one of Treasury's stated goals for HAMP is to standardize the 
loan modification process across the servicing industry, in our June 
2010 report, we identified several inconsistencies in the way 
servicers treated borrowers under HAMP that could lead to inequitable 
treatment of similarly situated borrowers.[Footnote 6] First, because 
Treasury did not issue guidelines for soliciting borrowers for HAMP 
until a year after announcing the program, the servicers we contacted 
solicited borrowers differently. A few solicited those who were 31 
days delinquent on their payments, but other servicers waited until 
borrowers were at least 60 days delinquent. We also noted that many 
borrowers had complained they did not receive timely responses to 
their HAMP applications and had difficulty obtaining information about 
the program. In March 2010, Treasury issued guidelines to address some 
of the issues related to communicating with borrowers about the 
program, and said it planned to monitor servicers' compliance with the 

Second, Treasury's lack of specific guidelines for determining HAMP 
eligibility for borrowers current or less than 60 days delinquent, but 
in imminent danger of defaulting has led to inconsistencies in how 
servicers evaluate them. The 10 servicers who GAO contacted reported 
seven different sets of criteria for determining imminent default. Two 
servicers considered borrowers in imminent default if they met basic 
HAMP eligibility requirements, but other servicers had additional 
criteria, such as requiring that a hardship situation has existed for 
more than 1 year. Treasury's goal was to create uniform, clear, and 
consistent guidance for loan modifications across the servicing 
industry, but these differences may result in one borrower's being 
approved for HAMP and another borrower with the same financial 
situation and loan terms being denied by a different servicer. We 
recommended that Treasury establish clear, specific criteria for 
determining whether a borrower was in imminent default to ensure 
greater consistency across servicers. However, Treasury believes the 
impact of these variations on borrowers is inconsequential and has 
declined to implement this recommendation. We continue to believe that 
further actions are warranted. 

In addition, Treasury has not clearly informed borrowers that they can 
use the HOPE Hotline to raise concerns about servicers' handling of 
HAMP loan modifications and to challenge potentially incorrect 
denials, likely limiting the number of borrowers who have used the 
hotline for these purposes.[Footnote 7] The HOPE Hotline also has 
procedures for referring borrowers who need additional assistance to 
the Making Home Affordable Escalation Team. However, it is unclear 
whether borrowers are aware of and using the HOPE Hotline to raise 
concerns about their servicers and challenge potentially incorrect 
denials. We recommended that Treasury (1) more clearly inform 
borrowers that the HOPE Hotline may also be used for these purposes 
and (2) monitor the effectiveness of the HOPE Hotline as a process for 
handling borrower concerns. 

Finally, Treasury has taken some steps to ensure that servicers comply 
with HAMP program requirements, but has yet to establish specific 
remedies for noncompliance with HAMP guidelines. For instance, the 
HAMP servicer participation agreement describes actions that could be 
taken in response to noncompliance and the HAMP Compliance Committee 
monitors servicers' performance and activities. But without 
standardized remedies for noncompliance, Treasury risks treating 
servicer noncompliance inconsistently and its methods of responding to 
incidents of noncompliance lack transparency. In our June 2010 report, 
we recommended that Treasury finalize and expeditiously issue 
consequences for servicers who do not comply with HAMP requirements. 
We made eight recommendations to improve the transparency and 
accountability of HAMP in June 2010. Treasury stated that it intended 
to implement some of the recommendations, but little action has been 
taken to date. 

Implementation Challenges Have Affected the Progress of Treasury's 
Newer Housing Programs: 

The implementation of Treasury's 2MP, HAFA, and PRA programs has been 
slow, and limited activity has been reported to date. This slow pace 
is attributed in part to several implementation challenges, including 
the following. 

* Difficulty matching first and second liens for 2MP. Because 
eligibility for 2MP required a first-lien HAMP modification, Treasury 
contracted with a database vendor to provide data on existing second 
liens that corresponded with these modifications. However, the 
servicers we contacted noted that even differences in the spelling of 
addresses--for example, in abbreviations or spacing--could prevent an 
accurate identification. Initial 2MP guidelines stated that servicers 
could not offer a second-lien modification without confirming a match 
with the database vendor, even if they had serviced both first and 
second liens on the same property. In November 2010, Treasury provided 
updated program guidance that allowed servicers to offer a 2MP 
modification if they could identify a first-and second-lien match 
within their own portfolio or had evidence that a corresponding first 
lien existed, even if the database had not identified it. 

* Extensive program requirements for HAFA. All six of the large MHA 
servicers we spoke with identified extensive program requirements as 
reasons for the slow implementation of HAFA, including the initial 
requirement that applicants first be evaluated for a HAMP first-lien 
modification. Because of this requirement, potential HAFA borrowers 
had to submit extensive income and other documentation required for a 
modification, even if they simply wanted to sell. In cases where a 
borrower had already identified a potential buyer before executing a 
short-sale agreement with the servicer, the additional time required 
for a HAMP first-lien evaluation may have dissuaded the buyer from 
purchasing the property. Restrictive short-sale requirements and a 
requirement that mortgage insurers waive certain rights may have also 
contributed to the limited activity under HAFA. Servicers said that 
given these requirements, they did not expect HAFA to increase their 
overall number of short sales and deeds-in-lieu. In response to this 
concern, Treasury released updated HAFA guidance on December 28, 2010, 
to no longer require servicers to document and verify a borrower's 
financial information to be eligible for HAFA. 

* Voluntary nature of the PRA program. Treasury officials told us that 
13 of the 20 largest MHA servicers were planning to offer principal 
reduction to some extent, but some servicers we spoke with said they 
would limit the conditions under which they would offer principal 
forgiveness under PRA. Treasury's PRA guidelines require all servicers 
participating in HAMP to consider principal forgiveness for HAMP- 
eligible borrowers with mark-to-market loan-to-value ratios (LTV) 
greater than 115 percent.[Footnote 8] But servicers are not required 
to offer principal reduction, even if the net present value (NPV) is 
higher when principal is forgiven.[Footnote 9] For example, one 
servicer had developed a "second look" process that used internal 
estimates of default rates to determine NPV and did not forgive 
principal unless these estimates--not those calculated using program 
guidelines--indicated a higher NPV with forgiveness. As a result, only 
15 to 25 percent of those who otherwise would have received principal 
forgiveness received it, according to this servicer. We recommended in 
June 2010 that Treasury report activity under PRA, including the 
extent to which servicers determined that principal reduction was 
beneficial to mortgage investors but did not offer it, to ensure 
transparency in the implementation of this program. Treasury officials 
told us they would report PRA activity at the servicer level once the 
data were available. We plan to continue to monitor Treasury's 
reporting of PRA and other TARP-funded housing programs. 

In addition, we found that Treasury could do more to build on the 
lessons learned from its first-lien modification program. For example, 
we previously reported that Treasury had not sufficiently assessed the 
capacity of servicers to implement the first-lien program. More 
recently, we observed that Treasury has not obtained all required 
documentation to demonstrate that servicers have the capacity to 
successfully implement the newer programs. According to Treasury, 
Fannie Mae has conducted program-specific readiness reviews for the 
top-20 large servicers for 2MP, HAFA, and PRA, including all 17 
servicers participating in 2MP. These reviews assess servicers' 
operational readiness, including the development of key controls to 
support new programs, technology readiness, training readiness, 
staffing resources, and program processes and documentation. According 
to Treasury's summary of these reviews, of those that had completed 
reviews, 4 had provided all required documents for HAFA, and 3 had 
provided all required documents for PRA. None of the servicers 
provided all required documents for 2MP. As a result, servicers' 
ability to effectively offer troubled homeowners second-lien 
modifications, foreclosure alternatives, and principal reductions is 
unclear. Further, Treasury has not implemented our June 2010 
recommendation that it establish goals and effective performance 
measures for these programs, nor has it said how it will use any 
assessments to hold servicers accountable for their performance. 
Treasury also has not established actions it will take in cases where 
individual servicers are not performing as expected in these programs. 
As we noted in June 2010, without performance measures and goals, 
Treasury will not be able to effectively assess the outcomes of these 

HAMP Borrowers Shared Several Characteristics, Including Reduced 
Income; Early Data Indicate that Borrowers Who Redefaulted from 
Permanent Modifications Were Further Into Delinquency: 

Our analysis of HAMP data for borrowers in trial and permanent 
modifications indicated that over half of borrowers cited curtailed 
income, such as reduced pay, as the primary reason for needing to 
lower their mortgage payments (56 percent of borrowers in active 
modifications and 53 percent in trial modifications). However, only 5 
percent of borrowers in each of these groups cited unemployment as 
their primary reason for financial hardship. Borrowers also had high 
levels of debt prior to modification with monthly mortgage payments 
that were 45 and 46 percent of gross monthly income, respectively, and 
total debt levels of 72 and 76 percent of gross monthly income, 
respectively. Even after modification, these borrowers continued to 
have high debt levels (median back-end DTI ratios of 55 and 57 percent 
for those in trial and permanent modifications, respectively). In 
addition, borrowers in trial and permanent modifications tended to be 
"underwater," with median mark-to-market LTV ratios of 123 percent and 
128 percent, respectively. 

Borrowers who were either canceled from a trial modification or 
redefaulted from a permanent one shared several of these 
characteristics, including having high debt levels and being 
"underwater" on their mortgages. However, some characteristics 
appeared to increase the likelihood that a borrower would be canceled 
from a trial modification. For example, borrowers who received a trial 
modification based on stated income were 52 percent more likely to be 
canceled from trial modifications than those who started a trial 
modification based on documented income. In some cases, borrowers who 
received trial modifications based on stated income were not able to 
or failed to provide proof of their income or other information for 
conversion to permanent modification.[Footnote 10] In other cases, 
borrowers may have submitted the required documentation but the 
servicer lost the documents. In addition, borrowers who were 60 or 90 
days or more delinquent at the time of their trial modifications were 
6 and 9 percent more likely to have trial modifications canceled, 
respectively, compared with borrowers who were not yet delinquent at 
the time of their trial modifications. Treasury has acknowledged the 
importance of reaching borrowers before they are seriously delinquent 
by requiring servicers to evaluate borrowers still current on their 
mortgages for imminent default. But, as we noted in June 2010, this 
group of borrowers may be defined differently by different servicers. 
[Footnote 11] 

Borrowers who had high mark-to-market LTV ratios (from 120 to 140 
percent) were 7 percent less likely to be canceled from trial 
modifications than those with mark-to-market LTV ratios at or below 80 
percent, and those with a mark-to-market LTV ratio of more than 140 
percent were 8 percent less likely to be canceled. Borrowers who 
received principal forgiveness of between 1 and 50 percent of their 
total loan balance were less likely to be canceled from trial 
modifications compared with those who did not receive principal 
forgiveness. In addition, larger monthly payment reductions lowered 
the likelihood that a trial modification would be canceled. For 
example, borrowers who received a principal and interest payment 
reduction of least 10 percent were less likely to be canceled from 
their trial modifications than other borrowers. 

Our initial observations of over 15,000 non-GSE borrowers who had 
redefaulted from permanent HAMP modifications through September 2010 
indicated these borrowers differed from those in active permanent 
modifications in several respects. Specifically, non-GSE borrowers who 
redefaulted on their HAMP permanent modifications tended to have 
higher levels of delinquency at the time they were evaluated for a 
trial modification (median delinquency of 8 months compared to 5 
months for those still in active permanent modifications), lower 
credit scores, and lower median percentage of payment reduction 
compared with those who were still current in their permanent 
modifications (24 percent compared with 33 percent). These borrowers 
may have received smaller reductions in their payments because they 
had lower debt levels before modification than borrowers who did not 

Most Borrowers Denied or Canceled from Trial Modifications Have 
Avoided Foreclosure to Date, but Limits to Treasury's Data Make 
Understanding Their Outcomes Difficult: 

We requested data from six servicers on the outcomes of borrowers who 
(1) were denied a HAMP trial modification, (2) had their trial 
modification canceled, or (3) redefaulted from a HAMP permanent 
modification. According to the data we received, of the about 1.9 
million GSE and non-GSE borrowers who were evaluated for a HAMP 
modification by these servicers as of August 31, 2010, 38 percent had 
been denied a HAMP trial modification, 27 percent had seen their HAMP 
trial modifications canceled, and 1 percent had redefaulted from a 
HAMP permanent modification.[Footnote 12] 

According to these servicers' data, borrowers who were denied HAMP 
trial modifications were more likely to become current on their 
mortgages without any additional help from the servicer (39 percent) 
than to have any other outcome. Of those borrowers who were canceled 
from a HAMP trial modification, servicers often initiated actions that 
could result in the borrower retaining the home. Specifically, 41 
percent of these borrowers had received or were in the process of 
receiving a permanent proprietary modification, and 16 percent had 
received or were in the process of receiving a payment plan. However, 
servicers started foreclosure proceedings on 27 percent of borrowers 
at some point after the HAMP trial modification was canceled, but only 
4 percent of these borrowers completed foreclosure. Compared with 
borrowers who were denied, borrowers who had a HAMP trial modification 
canceled were less likely to become current on their mortgages (15 
percent) or to pay off their loan (4 percent). 

Finally, though data are limited, of the borrowers who redefaulted 
from a HAMP permanent modification, almost half were reflected in 
categories other than proprietary modification, payment plan, becoming 
current, foreclosure alternative, foreclosure, or loan payoff. Twenty-
eight percent of borrowers who redefaulted from permanent 
modifications were referred for foreclosure at some point after 
redefaulting, but, like borrowers denied or canceled from a HAMP trial 
modification, the percentage of borrowers who completed foreclosure 
remained low relative to other outcomes (less than 1 percent). Unlike 
borrowers who were denied or canceled, borrowers who redefaulted were 
less likely to receive or be in the process for receiving a permanent 
proprietary modification or payment plan after redefaulting, with 27 
percent of borrowers receiving or in the process for receiving one of 
the outcomes. In addition, less than 1 percent of borrowers who 
redefaulted had become current as of August 31, 2010.[Footnote 13] 

We also looked at data that Treasury had begun reporting on the 
disposition paths of borrowers who were denied or canceled from HAMP 
trial modifications. However, weaknesses in how Treasury requires 
servicers to report data make it difficult to understand the current 
status of these borrowers. First, Treasury's system for reporting the 
disposition of borrowers requires servicers to place borrowers in only 
one category, even when borrowers are being evaluated for several 
possible dispositions, with non-HAMP (proprietary) modifications 
reported first. As a result, the proportion of borrowers reported as 
receiving proprietary modifications is likely to be overstated 
relative to other possible dispositions, such as foreclosure starts. 
Further, Treasury does not require servicers to distinguish between 
completed and pending actions, so some reported outcomes may not be 
clear. For example, we asked six large servicers to separate borrowers 
who had a HAMP trial modification canceled into two groups: those who 
were being evaluated for permanent proprietary modifications and those 
who had actually received them. The servicers' data indicated that 23 
percent of these borrowers were in the process of being approved for 
proprietary modifications, and 18 percent had received one. At the 
same time, Treasury reported that 43 percent of borrowers canceled 
from a HAMP trial modification through August 2010 were in the process 
of obtaining a proprietary modification.[Footnote 14] 

Servicers told us they had been able to offer more proprietary 
modifications than HAMP permanent modifications because proprietary 
modifications offered greater flexibility. For example, several 
servicers told us that their proprietary modification programs had 
fewer documentation requirements. Several servicers told us they were 
able to offer more proprietary modifications than HAMP modifications 
or help borrowers when HAMP could not because their proprietary 
modifications had fewer eligibility requirements, such as restrictions 
on occupancy type. In addition, while HAMP guidelines require 
borrowers to have a mortgage payment exceeding 31 percent of their 
income, all of the servicers we spoke with indicated their proprietary 
modification programs also served borrowers who had lower payment 
ratios. While the number of proprietary modifications has outpaced the 
number of HAMP modifications, the sustainability of both types of 
modifications is still unclear. For example, proprietary modifications 
may not reduce monthly mortgage payments as much as HAMP 
modifications, potentially affecting the ability of borrowers to 
maintain their modified payments. 

In summary, we reported in June 2010 that it would be important for 
Treasury to expeditiously implement a prudent design for the remaining 
TARP-funded housing programs. Our current work shows there is more 
Treasury can do to ensure the effective implementation of these 
programs, including ensuring that servicers have sufficient capacity 
to implement them, and that borrowers are notified about potential 
eligibility for second-lien modifications. We also believe it will be 
important for Treasury to have clear and accurate information on the 
dispositions of borrowers who are denied or fall out from HAMP 
modifications. Without accurate reporting of borrower outcomes, 
Treasury cannot know the actual extent to which borrowers who are 
denied, canceled, or redefaulted from HAMP are helped by other 
programs or evaluate the need for further action to assist this group 
of homeowners. We provided a copy of our current draft report to 
Treasury for its review and comment. Treasury acknowledged the 
report's description of servicers' challenges and appreciated our 
assessment of Treasury's housing programs. Treasury indicated that the 
draft report raised certain criticisms of the design and 
implementation of MHA that were unwarranted. We continue to believe 
there are opportunities to improve the transparency, accountability, 
and effectiveness of MHA and anticipating the report this month, in 
March 2011. We will continue to monitor Treasury's implementation and 
management of TARP-funded housing programs as part of our ongoing 
oversight of the performance of TARP in meeting its legislative goals. 
We are also conducting a broad-based study of the federal government's 
efforts to mitigate the impact of foreclosures, which will include an 
assessment of how federal foreclosure mitigation efforts or 
alternatives might better preserve homeownership, prevent avoidable 
foreclosures, and otherwise help resolve troubled mortgages. 

Chairman Biggert, Ranking Member Gutierrez, and Members of the 
Subcommittee, I appreciate this opportunity to discuss this important 
program and would be happy to answer any questions that you may have. 
Thank you. 

GAO Contact and Staff Acknowledgments: 

For information on this testimony, please contact me at (202) 512-8678 
or Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
statement. GAO staff who made major contributions to this statement 
include Lynda Downing, Harry Medina, John Karikari (Lead Assistant 
Directors); Tania Calhoun; Emily Chalmers; William Chatlos; Grace Cho; 
Rachel DeMarcus; Marc Molino; Mary Osorno; Jared Sippel; Winnie Tsen; 
Jim Vitarello; and Heneng Yu. 

[End of section] 


[1] GAO is required to report at least every 60 days on findings 
resulting from, among other things, oversight of the Troubled Asset 
Relief Program's (TARP) performance in meeting the purposes of the 
Act, the financial condition and internal controls of TARP, the 
characteristics of both asset purchases and the disposition of assets 
acquired, the efficiency of TARP's operations in using appropriated 
funds, and TARP's compliance with applicable laws and regulations (12 
U.S.C. § 5226(a)). Under this statutory mandate, we have reported on 
Treasury's use of TARP funds to preserve homeownership and protect 
home values. See GAO, Troubled Asset Relief Program: Treasury Actions 
Needed to Make the Home Affordable Modification Program More 
Transparent and Accountable, [hyperlink,] (Washington, D.C: July 2009) 
and GAO, Troubled Asset Relief Program: Further Actions Needed to 
Fully and Equitable Implement Foreclosure Mitigation Programs, 
[hyperlink,] (Washington, D.C: 
June 2010). 

[2] [hyperlink,]. 

[3] Government Performance and Results Act of 1993, Pub. L. No. 103-
62, 107 Stat. 285, codified at 5 U.S.C. § 306 (1993), and GAO, 
Standards for Internal Control in the Federal Government, [hyperlink,] (Washington, D.C.: 
November 1999). 

[4] [hyperlink,]. 

[5] The government-sponsored enterprises (GSE) Fannie Mae and Freddie 
Mac have directed all of their approximately 2,000 servicers to 
implement parallel HAMP programs on first-lien mortgages owned or 
guaranteed by the GSEs. Roughly 46 percent of borrowers who were in 
trial or permanent modifications as of September 30, 2010, had non-GSE 
loans and, therefore, fell under the TARP-funded portion of HAMP. 

[6] [hyperlink,]. 

[7] Fannie Mae, in its role as the MHA program administrator, has 
contracted with the Homeownership Preservation Foundation to offer its 
HOPE Hotline for incoming borrower calls about HAMP and Treasury's 
other MHA programs. Through the HOPE Hotline, borrowers may obtain 
information about the programs, assess their potential eligibility, or 
discuss their individual situations, including complaints about their 
servicer or about potentially incorrect HAMP denials. 

[8] Mark-to-market LTV is the unpaid principal balance divided by the 
property value at the time of modification. 

[9] The NPV model compares expected cash flows from a modified loan to 
the same loan with no modification, using certain assumptions. 

[10] Treasury has recognized challenges with documentation as a reason 
for the low conversion rate to permanent modifications, and as of June 
2010, began requiring that servicers verify borrowers' income before 
placing borrowers into trial modifications. 

[11] [hyperlink,]. 

[12] The remaining borrowers included those in active trial and 
permanent modifications, those who were still being evaluated for 
trial modifications, and those who were offered but declined trial 
modifications. Two servicers provided the data as of their closing 
date for reporting August 2010 data to Treasury, September 6, 2010, 
and September 8, 2010, respectively. 

[13] Because borrowers who redefault on a HAMP modification would 
still retain the terms of their HAMP modification, we would not expect 
many borrowers who redefaulted to receive a proprietary modification. 
One servicer, however, reported that 95 percent of those borrowers who 
redefaulted from a HAMP permanent modification had an action pending 
for a proprietary modification. The servicer explained that it 
evaluates the majority of these borrowers for another modification 
program after they redefault. 

[14] We requested that servicers provide the data as of August 31, 
2010, but servicers could report borrowers with a canceled HAMP trial 
modification to Treasury until early September 2010 for August 2010 
reporting. In addition, servicers may have included loans in our data 
request that have not yet been reported to Treasury and, therefore, 
would not be reflected in the number of borrowers that Treasury 
reports. Lastly, one servicer reported borrowers to Treasury for a 
business division not included in our data. 

[End of section] 

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