TARP watchdog blasts Obama's foreclosure program

By Ben Rooney, staff reporter


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. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,622.38 265.51 1.53%
Nasdaq 4,715.71 71.40 1.54%
S&P 500 2,043.28 30.39 1.51%
Treasuries 2.21 0.06 2.84%
Data as of 12:28pm ET
Company Price Change % Change
Bank of America Corp... 17.42 0.16 0.93%
Apple Inc 111.31 1.90 1.74%
Oracle Corp 44.58 3.43 8.32%
General Electric Co 24.96 0.54 2.19%
Halliburton Co 39.23 -0.21 -0.53%
Data as of 12:12pm ET

Sections

Sony may have pulled its controversial film 'The Interview', but North Korean citizens may soon have copies dropping from the sky. More

Reddit's Alexis Ohanian has been vocal about the need for high-skilled visa reform. At stake? The country's position as a tech leader. More

Congress waited until the last minute to decide what to do with a slew of expired tax breaks. They extended most of them, and a handful will affect individuals directly. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.