A lack of comprehensive planning by the Treasury Department and an inability to enlist servicer participation has stymied a federal program that provided billions in borrower assistance to state housing agencies, according to an inspector general's report.
The report, released early Thursday morning by the Special Inspector General (IG) for the Troubled Asset Relief Program (TARP), found that the so-called 'Hardest Hit Fund' has been mired in delays and distributed only a fraction of the funds available to struggling homeowners.
As of Dec. 31, the fund had spent only $217.4 million, or 3%, of the $7.6 billion that was allocated for the fund, which was created in 2010 to help underwater and unemployed borrowers in some of the country's weakest housing markets. The funds have provided assistance to 30,640 homeowners, approximately 7% of the minimum number of homeowners that state agencies estimated they could help over the life of the program, which ends in 2017, the report said.
"Ultimately, Hardest Hit Fund risks becoming another TARP-funded housing program with limited impact," Christy Romero, the special inspector general, said in an interview Wednesday.
Romero said the blame lay squarely with the Treasury Department, which should have done more to facilitate participation by larger servicers and the government-sponsored enterprises. Instead, she said, the agency left it to the state housing finance agencies to appeal directly to servicers, many of whom were reluctant to participate until the GSEs supported the various state programs and issued specific guidance.
"After more than two years, the mantra from Treasury has been, 'This is the states' program, not ours,'" Romero said. "The mantra has to change. Ultimately, these are federal TARP dollars, [and] Treasury is the steward over federal TARP dollars."
According to the report, the fund was developed in part to address problems - such as negative equity and unemployment - that were not being addressed by the administration's signature housing assistance initiative, the Home Affordable Modification Program (HAMP).
But Treasury has never set measurable goals by which the public and Congress can track the program's progress, and hasn't even reported the number of borrowers the fund intends to help, Romero said. (According to estimates from the 19 individual housing finance agencies, that number is between about 458,000 and 486,000.)
The inspector general called on Treasury to develop an action plan that would set interim metrics as well as long-term goals for the fund, outline steps to increase borrower participation and redirect funds to more successful programs when the goals aren't met.
In a comment letter included in the report, Assistant Treasury Secretary Timothy Massad said the IG's recommendations for accelerating or improving the process were unworkable, and said establishing numeric targets is "not well suited to the dynamic nature of the HHF."
Massad, Treasury's assistant secretary for financial stability, also insisted that the agency "actively and consistently engaged with servicers and the GSEs from the earliest stages of the program, encouraging support and addressing impediments to participation."
The fund has distributed money to 19 housing finance agencies, which have developed 50 different programs with a range of assistance programs, including principal forgiveness, unemployment mortgage assistance, and buy-and-modify programs.
So far, 98% of the assistance provided has been in the form of unemployment assistance or reinstatement of past due amounts, the only types of assistance for which the GSEs directed servicers to participate, the IG report said. While the fund may be able to help unemployed homeowners, it may be limited in what it can do for underwater borrowers, it added.
"Unless there is a drastic change in assistance the GSEs and their conservator, the Federal Housing Finance Agency, will support, the Hardest Hit Fund may be much narrower in scope and scale than what was originally expected due to the lack of servicer and GSE support for such programs," the report said.