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Timothy Geithner

The federal government's highly touted plan to slow down home foreclosures is not working, charges Neil Barofsky, special inspector general for the Troubled Asset Relief Program.

The House Committee on Oversight and Government Reform is holding a hearing today to discuss the government's foreclosure prevention efforts and examine whether HAMP is truly preserving homeownership.

Barofsky and Herbert Allison, assistant Treasury secretary for financial stability, are scheduled to testify.

Barofsky maintains the numbers disclosed to date by the Federal Housing Finance Agency are bloated. Allison says the program needs more time to work.  Several Congressmen already have sharply criticized HAMP.

Please see related Real Estate Channel posting:

HAMP Growing, Modifications Up in January, Mar. 24, 2010

HAMP will fall far short of the administration's promise to prevent foreclosure for three to four million homeowners, according to one federal watchdog, reports DSNews.com.

Neil Barofsky

Barofsky says HAMP's "disappointing results have raised questions about program effectiveness."

He's determined that the Treasury Department has set targets that aren't "meaningful" and that HAMP is "particularly vulnerable to re-defaults," which will mean throngs of borrowers will end up facing foreclosure anyway and the program's success rate will go even lower, according to DSNews.com.

These conclusions come after Barofsky initiated an audit of the federal program last week upon prompting from lawmakers.

A year into the program, and Treasury officials have changed their tune about the numbers.

According to Barofsky, the administration now says that three to four million troubled homeowners will be "offered" assistance through HAMP, but only 1.5 to 2 million will actually be given permanent relief over the course of the four-year program.

The special inspector general says the latter will be "only a small fraction of the total number of foreclosures that will occur during that period."

In his report, Barofsky questions "whether HAMP is worth the resources being expended or whether the program needs to be re-vamped to actually help more borrowers."

GOP lawmakers, too, have been relentless in their criticism of HAMP, going so far as to call the program outright, "an abject failure," according to DSNews.com.

In a March 16 letter to Treasury Secretary Timothy Geithner, Republican Reps. Darrell Issa (California) and Jim Jordan (Ohio) echoed Barofsky's conclusions, saying the administration "continues to widely overstate" HAMP's impact.

"Rather than acknowledge the program's failure, Treasury is trying to confuse the American people by counting HAMP's higher number of temporary modifications -- fewer than one-third of which are successfully converting to permanent ones -- toward the goal," the lawmakers wrote.

At the end of February, only 170,000 borrowers had received permanent HAMP modifications.

In response to Barofsky's report, the Treasury said "at launch there were a number of unknowns ... that made it difficult to set appropriate targets."

According to Allison, the success of the program should not be based solely on permanent modifications, but should take into account the administration's multi-pronged approach to foreclosure avoidance, including its Home Affordable Foreclosure Alternatives (HAFA) short sale program.

On top of the diminished count of homeowners to receive actual help through HAMP, Barofsky says the program is fundamentally engineered to have a high re-default rate.

By Treasury's own estimates, four out of every 10 homeowners - in either a trial or permanent HAMP mod - will eventually turn delinquent again.

Barofsky says this is because of several inherent flaws in the program:

• Non-mortgage debt is not factored into the equation, which can affect a borrower's ability to pay;
• The HAMP mod period only lasts for five years, after which a borrower's payments will start to go up automatically;
• Treasury has been unsuccessful in getting servicers to modify second liens, which saddle 50 percent of at-risk borrowers;
• And of  that "walk-away" trigger - negative equity.

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