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Obama's mortgage mod plan is still lacking

By Les Christie, staff writer

NEW YORK (CNNMoney.com) -- The Treasury Department's foreclosure prevention efforts have been found lacking -- again.

Last April, the Congressional Oversight Panel found the program to be struggling to get off the ground despite having been in action for a year and a half. The latest evaluation of the Home Affordable Modification Program (HAMP) came out Tuesday and the result was -- same deal.

HAMP has undergone tweaks since April. But the Congressional Oversight Panel, created to issue periodic reports on the TARP bailout program, found little improvement in performance.

Instead of helping 3 million to 4 million struggling mortgage borrowers keep their homes, as originally projected, HAMP will prevent only about 700,000 to 800,000 foreclosures. That number is dwarfed by the 8 million to 13 million foreclosures expected to occur by 2012.

Through the end of October, there have been 519,648 permanent modifications made.

"I think the program has turned out to be a lot smaller and have a lot less impact than we thought it would," said Ted Kaufman, the former U.S. senator from Delaware who is now chaiman of the Congressional Oversight Panel.

And, since the Treasury Department lost the authority to further restructure the program at the end of October, bolstering its prospects is no longer likely, the report said. In fact, banks are offering more modifications through their own process than through the government's.

The new report cited several reasons for the program's failure. For one, servicers, the companies hired by banks to manage the loans, earn extra profits through fees imposed during foreclosure. Because of that, servicers were preventing or delaying modifications.

Treasury later recognized this problem, but its remedy -- offering servicers cash incentives to modify loans -- fell short. It hurt that servicers were not required to participate.

Even though reports emerged repeatedly that told of servicers delaying help, losing paperwork and failing to offer meaningful modifications, Treasury failed to hold these companies accountable, the report said.

Another big obstacle was that many loans in trouble often came burdened with second mortgages -- home equity loans or lines of credit -- that had to sign off on potential deals.

Because so many homes are worth less than the borrowers owe, there is little money to cover the first loan, let alone a second mortgage. So many banks in the second position refused to sign off unless they were paid something.

The oversight panel also faulted Treasury for not having effective means of collecting and analyzing HAMP data. The department, said the panel, did not even set meaningful goals against which to weigh the program's effectiveness.

Because participation has been so limited, HAMP will probably only spend about $4 billion of the $30 billion allocated for it.

"Treasury's reluctance to acknowledge HAMP's shortcomings has had real consequences," said the report. "Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help -- all because Treasury failed to acknowledge HAMP's shortcomings in time."

But even the loans that have been permanently modified through HAMP have not performed well. Many have already re-defaulted.

"Re-default represents a lot of taxpayer money down the drain with no good effect," said Kaufman. To top of page

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