Thursday, April 12, 2012

Special Inspector General of TARP: Foreclosure aid program flawed, plan limited help for unemployed and underwater homeowners

From the Special Inspector General of TARP's report on the Treasury's foreclosure aid program Hardest Hit Fund. Interesting piece on page 26:

The Primary Challenge for HFAs Was Lack of Participation

by Large Servicers

Several HFAs told SIGTARP that their primary challenge with the

implementation of HHF was the lack of participation by large servicers. In regard

to the lack of servicer participation, one HFA told SIGTARP that on a scale of

one to 10, “this was a 10.” Another HFA told SIGTARP, “Our biggest complaint

is we were provided these funds, and we have such a need here, but we weren’t

able to handle the mass numbers because of no participation from the large


SIGTARP found that Treasury’s delay in securing support from large servicers

and the GSEs in Round One, and even in Round Two, was a planning and

execution error. There was a very low volume of homeowners assisted until after

the GSEs came on board, which in turn led to large servicer participation. A

Treasury official told SIGTARP that the program was purposefully designed to

have the HFAs negotiate with the servicers, but several HFAs reported being

rebuffed by large servicers when seeking their participation for the Treasuryapproved

programs. One HFA told SIGTARP that large lenders said that with the

number of homeowners who would receive assistance and the lenders’ capacity,

implementing the HHF program without a consistent process from the states

would have been difficult for them. Another HFA told SIGTARP that servicers

responded by saying that all of the HHF states with different programs would be

too many different programs to handle. In designing the program this way,

according to two HFAs, Treasury did not address the lack of bargaining power

that smaller state HFAs had to recruit large servicers. A Florida HFA official

explained to SIGTARP, “The one billion dollars has been a nice carrot to use for

servicers in Florida, but there is no stick with the carrot to force servicers to

participate.” Another HFA told SIGTARP that it would have been helpful if

Treasury had been more aggressive in getting large lenders to participate.

Treasury was aware of the HFAs’ lack of progress in recruiting large servicers.

One HFA official said that at the time Round One states signed their HHF

contracts, one question was unanswered – would large servicers participate in

HHF? He said that Treasury did not have an answer but Treasury realized the

large banks “were late to the table.”

Prior to receiving crucial guidance from the GSEs in October 2010, none of the

four largest servicers had agreed to participate with any of the 19 HFAs in HHF.

Several HFAs launched pilot programs with local community banks, and credit

unions signed up to participate – though these institutions held a relatively small

number of loans. Several HFAs praised Treasury for encouraging HFAs to pilot

their programs before a full rollout.

Read more from the Special Inspector General's report. Click here.

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