Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program (TARP), this week hammered the Obama Administration and Treasury Department at a panel discussion on the foreclosure crisis, saying fears of a political backlash led to the administration's tepid response to the housing crisis and refusal to back principal reductions.

Barofsfky, a former assistant U.S. attorney who is now a senior fellow at New York University's School of Law, said the administration's Home Affordable Modification Program (HAMP) was "a failure" because the Obama White House feared being labeled as helping "undeserving homeowners."

Asked if there was any hope for homeowners at risk of foreclosure, Barofsky said: "Um, no."
The panel was organized by ProPublica, a non-profit news organization funded by the Sandler Foundation, which is headed by Herb and Marion Sandler. The Sandlers formerly owned GoldenWest Financial/World Savings Bank of Oakland, once one of the nation's top ranked originators of payment option ARMs.

Other participants in the discussion included ProPublica reporter Paul Kiel, Alyssa Katz, editor of Columbia Journalism School's New York World, and this reporter.

"The crisis is an example of how people lose their faith in government, which has costs that are hard to quantify," Barofsky said during the two-hour event at the Tenement Museum in New York's Lower East Side. "Everything that has happened since [TARP] has been something of a mess."

When the administration introduced the HAMP program in 2009, Rick Santelli, an editor at CNBC Business News, went on a "rant," calling defaulted homeowners "losers" and accusing the government of "promoting bad behavior." Santelli is credited with sparking (and naming) the Tea Party Movement by suggesting that people opposed to the government form a "Chicago Tea Party."

Barosky said the White House, out of concern that aiding homeowners would cause a political backlash, quickly backed away from its goal of helping 3 million to 4 million homeowners avoid foreclosure.

There was a fear of "moral hazard," the idea that homeowners who were not financially strapped would default to get a principal reduction, Barofsky said.

He argued that the $28 billion left in the TARP program should be used to modify loans, but he faulted the Treasury for never spending the money, calling it a "lost opportunity."

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.