From the Special Inspector General of TARP's report on the Treasury's foreclosure aid program Hardest Hit Fund. Interesting piece on page 26:
Read more from the Special Inspector General's report. Click here.
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
lenders.”
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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