Inspector General Hits Obama Admin’s ‘Hardest Hit’ Housing Program

By Alan Zibel
A $7.6 billion Obama administration program that targets areas especially suffering from the housing crisis is falling short, with the government spending only about 3% of money set aside for “underwater” mortgage borrowers and other problems, a watchdog report said.

The report released Thursday by the special inspector general for the 2008 financial system rescue criticized the administration’s “Hardest Hit” program, which President Barack Obama announced in February 2010. It sends aid to 18 states and Washington, D.C. Bureaucratic hurdles, a refusal to allow mortgage writedowns at Fannie Mae and Freddie Mac and limited participation by banks have slowed spending.

Envisioned as an effort to help local communities target aid to address problems in their areas, the program had only spent $217.4 million as of the end of last year, according to the report. Only about 30,600 homeowners have been helped so far, out of an estimated potential for 487,000.

The inspector general, Christy Romero, said in an interview that she was worried that the Hardest Hit program will also fall flat. “There’s a great concern that, without some drastic change, that money is not going to go out and help homeowners,” Ms. Romero said.

Ms. Romero’s report is the first comprehensive examination of a newer piece of the administration’s foreclosure-prevention efforts, which have been widely criticized for not making a big dent in the country’s housing problems.

The slow progress has prompted the administration to put a renewed focus on changes to its housing programs. The Treasury Department’s main Home Affordable Modification Program had helped about 783,000 homeowners as of February, well short of the original goal of modifying three million to four million mortgages.

The housing programs are in line for up to $45.6 billion in funding from the 2008 financial rescue. But the administration has had difficulty getting that money out the door due to requirements intended to screen out undeserving homeowners.

Under the Hardest Hit program, states, like California, Nevada and Arizona focused on aiding “underwater” homeowners, or those who owe more on their properties are worth.

Those states had trouble launching their programs, mainly because of the refusal of mortgage-finance giants Fannie Mae and Freddie Mac to allow loan writedowns. Bank of America Corp. is the only large mortgage servicer to participate in the Hardest-Hit mortgage writedown program.

Only $10.4 million, or 5% of the money spent so far, has gone to debt forgiveness, the report found.

States focused on aid for the unemployed had more luck. Of the money spent on the program as of the end of last year, 75%, or $162 million was on unemployment assistance, the report found.

Treasury officials say states are making tweaks to their programs that should result in more borrowers being helped before it expires in 2017. States including North Carolina, Oregon and Rhode Island are on already track to spent their money before the program runs out, officials say.

Tim Massad, assistant Treasury secretary for financial stability, said the inspector general’s report “misses the mark by not acknowledging the hard work of participating states and the innovative ways they are preventing foreclosures in their local communities.”

The inspector general’s report also criticized the department for delays in rolling out the program and for waiting until September 2010 to bring industry and government officials together to get the program up and running.

In addition, the administration did not have broad acceptance from the mortgage industry for programs it approved, such as loan write-downs or reduction in second mortgages. And it took months of negotiations with the regulator of mortgage giants Fannie Mae and Freddie Mac to hammer out implementation details.

“Treasury did not use its influence with key stakeholders for effective implementation of the program,” the report said.

Mary Townley, director of Michigan’s state housing authority, defended the effort Wednesday in a blog post on the Treasury’s web site. The states involved “learned from initial trials and continue to adapt their programs to improve effectiveness,” she wrote.

URL to original article: http://blogs.wsj.com/developments/2012/04/12/inspector-general-hits-obama-admins-hardest-hit-housing-program/

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