The Special Inspector General for the Troubled Asset Relief Program (SIGTARP), a watchdog for the housing assistance initiative in 2009, concluded that close to half of the mortgages that were modified at the height of the housing collapse have defaulted yet again, a report that was released Wednesday.
The watchdog group found out that 46 percent, or 306,000, of borrowers who garnered loan adjustments under the Home Affordable Modification Program (HAMP) had re-defaulted. The inspector general also warned that another 88,000 have missed one or two monthly payments and are at risk of re-defaulting as well. The new report has many concerned about the effectiveness of the president’s homeowner rescue efforts.
“This is a program where there’s not enough people being helped,” Christy Romero, special inspector general for SIGTARP, told Reuters. “Ultimately, the Treasury needs to make good on its promise that TARP is not just a bailout for the largest financial institutions but it will also help bailout homeowners.”
In May, the program, which was supposed to help those who were affected by the housing crisis, was extended by an additional two years. It takes money from the Treasury Department’s financial bailout fund and allocates money to lenders and servicers in order to revise the loan terms for borrowers.
President Obama signed off on the program, despite warnings by the Treasury that these re-defaulting individuals were high risk to begin with. Since late April, taxpayers have lost approximately $815 million – roughly $4.4 billion has been spent out of the allocated $19.1 billion.
“Exactly why people are falling out of HAMP isn’t well understood by Treasury,” added Romero. “If re-defaults are happening at an alarming rate, then you’ve got to stop that and change the program somehow where you stop the trend.”
It has been suggested by Romero that the Treasury should work close with lenders so they can establish a system whereby they speak with at-risk homeowners regarding the possibility of default. This way, something can be done without the owners losing their homes.
“Treasury pulled out all the stops for the banks, they should do the same for homeowners,” noted Romero.
An official for the Treasury department told reporters that foreclosure rates have decreased.
“There will always be an inherent risk of homeowner re-default rate in a program like this given the very difficult circumstances that people who need modifications face,” stated the Treasury official, who spoke on the condition of anonymity. “The longer they are in there, the less likely they are to re-default.”
Since the Great Recession began in 2007 and 2008, foreclosures have been an important issue for lawmakers. The topic has also generated protests across the country in which the demonstrators have demanded the same treatment that Wall Street has received over the past few years.
Overall, foreclosures have been up 47 percent from a year ago, according to RealtyTrac. In total, there have been nearly 150,000 foreclosures with California (31,434), Florida (14,303) and Texas (12,755) ranking in the top three. Despite rates leveling off in recent months, housing experts and industry leaders have projected foreclosure numbers to soar in the next several months.