President Obama's foreclosure prevention program will likely fall far short of its goal and may even do more harm than good, a government watchdog said Tuesday.
The Special Inspector General for the Troubled Asset Relief Program said the Treasury Department set targets that weren't "meaningful," mismanaged the implementation of the program, and now risks a substantial number of "re-defaults," with many participants ultimately losing their homes anyway.
The administration's $75 billion loan modification program may help as little as 1.5 to 2 million people, about half the number Obama said it would when he first unveiled the program in February 2009, the inspector general, Neil Barofsky, wrote in a report.
Recently, Treasury Department officials have come under fire for saying the initial goal applied only to offering trial modifications, as opposed to permanent help.
"Continuing to frame HAMP's success around the number of "offers" extended is simply not sufficient," Barofsky wrote, referring to the Home Affordable Modification Program.
Under HAMP, eligible troubled borrowers can have their monthly mortgage payments reduced to 31% of their pre-tax income. But first, homeowners are put into trial modifications to determine whether they can keep up with the lowered payments and to give loan servicers time to verify income and hardship.
Homeowners, servicers and mortgage investors are eligible for incentives, paid for with TARP funds, when the trial adjustments are converted to long-term modifications.
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