NEW YORK (CNNMoney.com) -- The Obama Administration's main foreclosure-prevention program continues to fall short, and last year's Wall Street reform act does not adequately address the threat that big financial firms pose to the broader economy, the top federal bailout watchdog said Tuesday.
In a quarterly report released to Congress, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, said the program has been a success financially, but that programs "designed to help Main Street rather than Wall Street" have been failures.
Barofsky focused part of his criticism on the Home Affordable Modification Program, known as HAMP, which is intended to help eligible homeowners avoid foreclosure by facilitating mortgage modifications with loan servicers.
As of Dec. 31, there have been just over 500,000 ongoing permanent modifications under HAMP, with about 238,000 of those funded by and attributable to TARP -- figures Barofsky called "anemic."
The report also blasts the Treasury Department, which oversees the program, for refusing to adopt "meaningful goals and benchmarks" for HAMP.
Tim Massad, a Treasury official, defended the program in a conference call with reporters.
"It's important to recognize that these programs are making an impact, and while there may be difficulties in implementation, we're still committed to doing as much as we can to help as many people as possible."
Massad said HAMP has had an "indirect" impact on loan servicers, prompting them to do more modifications voluntarily. He stressed the goal of HAMP was not to "fix all of the problems in the housing market," but to provide assistance for some homeowners.
Still, while Baorfsky criticized HAMP and other aspects of TARP, he did acknowledge the the $700 billion program as has been financially successful.
"While Treasury's ultimate return on its investment depends on a host of variables that are largely unknowable at this time, TARP's financial prospects are today far better than anyone could have dared to hope just two years ago," Barofsky wrote about the program, which was enacted in 2008 in order to stabilize the banking system by buying or backing "troubled assets."
But he says the billions of dollars that were used to bailout faltering financial institutions, such as Citibank, AIG and Bank of America, during the crisis set a dangerous precedent.
"By effectively guaranteeing these institutions against failure, they encouraged future high-risk behavior by insulating the risk-takers who had profited so greatly in the run-up to the crisis from the consequences of failure," he wrote. "In many ways, TARP has thus helped mix the same toxic cocktail of implicit guarantees and distorted incentives that led to disastrous consequences."
Barofsky also faults the Dodd-Frank bill, a law passed last year that enacted sweeping reforms of the nation's financial regulatory framework, for not being forceful enough to deal with too-big-to-fail banks.
"Unless and until institutions currently viewed as 'too big to fail' are either broken up so that they are no longer perceived to be a threat to the financial system, or a structure is put in place that gives adequate assurance to the market that they will be left to suffer the full consequences of their own recklessness, the prospect of more bailouts will continue to fuel more bad behavior with potentially disastrous results," he wrote.