Summary
GAO's sixth report on the Troubled Asset Relief Program (TARP) focuses on the Department of the Treasury's (Treasury) efforts to establish its Home Affordable Modification Program (HAMP). This 60-day report examines (1) the design of HAMP's program features with respect to maximizing assistance to struggling homeowners, (2) the analytical basis for Treasury's estimate of the number of loans that are likely to be successfully modified using TARP funds under HAMP, and (3) the status of Treasury's efforts to implement operational procedures and internal controls for HAMP. For this work, GAO reviewed documentation from Treasury and its financial agents and met with officials from Treasury, its financial agents, and other organizations.
Under HAMP, Treasury will use up to $50 billion in TARP funds to (1) modify the first-lien mortgages of homeowners in danger of foreclosure, (2) encourage the modification of mortgages in areas experiencing serious declines in property values, (3) reduce or pay off second-lien mortgages for homeowners with loans modified under HAMP, (4) arrange deeds-in-lieu or short sales as alternatives to foreclosure; and (5) provide incentive payments to encourage refinancing under the HOPE for Homeowners program. The first-lien mortgage modification effort is the largest and most developed part of HAMP, and Treasury and its financial agents are establishing the operational infrastructure for this effort. However, one of the requirements under the first-lien program--that borrowers with high levels of household debt agree to obtain counseling--may not fully meet Treasury's goals. Treasury's estimate of the number of borrowers who would likely be helped under its HAMP loan modification program reflects uncertainty created by data gaps and the need to make numerous assumptions, and this projection may be overstated. In addition, Treasury has not specified its plans for systematically updating key assumptions and calculations. Treasury announced that up to 3 to 4 million borrowers who were at risk of default and foreclosure could be offered a loan modification under HAMP. Treasury has taken a number of important steps toward implementing operational procedures and internal controls for HAMP but has not finalized all of the associated processes and is not systematically evaluating servicers' capacity during program admission. Treasury officials have developed and continue to refine key operational procedures and internal controls, including establishing an organizational structure for overseeing HAMP, delegating implementation authorities and responsibilities to its financial agents, and drafting work flows for processes such as those associated with the payment of incentives. As of July 20, 2009, about 180,000 borrowers have entered into trial modifications but HAMP incentive payments will not be made until July 27 at the earliest--pending successful completion of the 90-day trial periods. Yet concerns have been raised by Treasury, the Congressional Oversight Panel, and federal banking regulators about servicers' capacity to fulfill program requirements and implement HAMP. Because servicers are not fully evaluated during the admittance process, Treasury is unable to adequately identify, assess, and address any potential risks that may prevent them from fulfilling program requirements.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Team:
Phone:
Mathew J. Scire
Government Accountability Office: Financial Markets and Community Investment
(202) 512-6794
Recommendations for Executive Action
Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should consider methods of (1) monitoring whether borrowers with total household debt of over 55 percent of their income who have been told that they must obtain HUD-approved housing counseling do so, and (2) assessing how this counseling affects the performance of modified loans to see if the requirement is having its intended effect of limiting redefaults.
Agency Affected: Department of the Treasury
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should reevaluate the basis and design of the HPDP program to ensure that HAMP funds are being used efficiently to maximize the number of borrowers who are helped under HAMP and to maximize overall benefits of utilizing taxpayer dollars.
Agency Affected: Department of the Treasury
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should institute a system to routinely review and update key assumptions and projections about the housing market and the behavior of mortgage-holders, borrowers, and servicers that underlie Treasury's projection of the number of borrowers whose loans are likely to be modified under HAMP and revise the projection as necessary in order to assess the program's effectiveness and structure.
Agency Affected: Department of the Treasury
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should place a high priority on fully staffing vacant positions in HPO--including filling the position of Chief of Homeownership Preservation with a permanent placement--and evaluate HPO's staffing levels and competencies to determine whether they are sufficient and appropriate to effectively fulfill its HAMP governance responsibilities.
Agency Affected: Department of the Treasury
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously finalize a comprehensive system of internal control over HAMP, including policies, procedures, and guidance for program activities, to ensure that the interests of both the government and taxpayer are protected and that the program objectives and requirements are being met once loan modifications and incentive payments begin.
Agency Affected: Department of the Treasury
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: As part of its efforts to continue improving the transparency and accountability of HAMP, the Secretary of the Treasury should expeditiously develop a means of systematically assessing servicers' capacity to meet program requirements during program admission so that Treasury can understand and address any risks associated with individual servicers' abilities to fulfill program requirements, including those related to data reporting and collection.
Agency Affected: Department of the Treasury
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
