Report criticizes mortgage plan

By Alan Zibel
AP Real Estate Writer

WASHINGTON (AP) — A government watchdog is criticizing the Obama administration for establishing a “meaningless” goal for its flagship mortgage assistance program.
The report issued recently by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says the Obama administration is measuring the performance of the program by a questionable standard.
At the program’s launch in February 2009, Obama officials said it would help 3 million to 4 million homeowners.
But with only 170,000 borrowers completing the program so far, administration officials now emphasize that the plan’s goal is to merely offer help to those millions.
“Defining success by how many offers are given can reasonably be perceived as essentially meaningless,” Barofsky wrote. Instead, the program’s goal “must relate to how many people are helped to avoid foreclosure.”
Herbert Allison, an assistant Treasury secretary, acknowledged in a letter written in response to the report that officials’ statements about the plan’s goals “have not always been precise.”
But he argued that offers of help is a meaningful measurement because some borrowers who don’t qualify for the government program will still be able to avoid foreclosure.
The Obama program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years.
The government has set aside $75 billion in subsidies to entice mortgage companies to participate. More than 100 have signed up.
To complete the program, homeowners need to complete a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.
But getting banks and homeowners to complete the process has been tough.
Barofsky said in his report that an unnamed Treasury official estimated that 1.5 million to 2 million homeowners would complete the program by the end of 2012.
That, Barofsky noted, “may only be a small fraction of the foreclosures that will occur in that period.”
The report is strongly critical of the government in other areas. Barofsky noted that numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
In response, Allison noted that the program “is the largest, most complex mortgage modification program of its kind” and said there was little precedent for how to design such an endeavor.