Don't look to hear this news about failure on many news outlets.
WASHINGTON — Obama administration housing rescue programs have been ineffective at preventing a rise in home foreclosures even as the government's support for the mortgage market grew by nearly $700 billion in the past year, bailout watchdogs said on Wednesday.
Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, heaped more criticism on Treasury for its failure to adopt more realistic goals for the number of people who can benefit from its program to modify mortgages to slash monthly payments.
"Treasury's continued indications that this is a successful program without identifying these goals and benchmarks is simply not credible," Barofsky told the U.S. Senate Finance Committee. "And I fear that the growing public suspicion that this program is an outright failure will continue unless and until Treasury adopts this recommendation and comes clean with what its goals and expectations are."
The Treasury has stated its goal for its $75 billion Home Affordable Modification Program was to cut monthly payments for 3 million to 4 million "responsible" homeowners by the end of 2012 — excluding speculators or those who bought vacation homes.
The Treasury released figures this week showing that it had assisted 1.3 million homeowners so far, but over 40 percent of these — around 530,000 — have dropped out of the program. In fact, more borrowers dropped out than those who achieved permanent status in June.
Barofsky and Elizabeth Warren, who chairs the bailout Congressional Oversight Panel, told lawmakers that the program was doing little to provide real housing relief.
Warren, considered a leading candidate to lead the new Consumer Financial Protection Bureau signed into law by President Barack Obama on Wednesday, said the program had not kept up with the deterioration in the housing market.
"It's too small, it's too slow," she said. "The program is based on the assumption that we will pay the servicers a bribe to make a deal between the homeowner and the investor who's still holding the paper and it has not worked well."
Barofsky, in a new quarterly oversight report, again pressed his recommendation that Treasury consider making mortgage principal reduction mandatory instead of voluntary, saying this would do more to aid "underwater" homeowners, who owe more than their homes are worth.
The Treasury has declined to adopt the recommendation, citing the prospect that mandatory principal reduction would lead mortgage servicing firms to opt out of the program. It is also concerned about fairness issues, as reductions in principal would help not only responsible homeowners hit by value declines, but also those who overleveraged their properties in refinancings.
U.S. Treasury officials defended their efforts, saying that it had permanently reduced monthly payments for nearly 400,000 homeowners and was adapting to changing conditions by offering forbearance to unemployed people and extra funding for the hardest-hit markets.
Herbert Allison, Treasury assistant secretary for financial stability, said the Treasury often agrees with Barofsky's recommendations, "but once in a while, we differ on what type of policy will best carry out our mandate."
$3.7 trillion tab
Barofsky's report also estimated that total U.S. taxpayer support for the financial system grew by $700 billion in the past year to around $3.7 trillion — including TARP, Federal Reserve programs, asset guarantees and federal bank deposit insurance, among other commitments.
The increase was largely due to the government's pledges to supply capital to Fannie Mae and Freddie Mac and buy their securities and guarantee mortgages to prop up housing, it said.
Increased guarantees for loans backed by the Federal Housing Administration, the Government National Mortgage Association and the Veterans administration increased the government's commitments by $512.4 billion alone in the year to June 30, according to the report.
Barofsky said the increase was "the equivalent of a fully deployed TARP program" — a reference to TARP's original $700 billion price tag — and came
The increased government commitments more than offset about a $300 billion decline in the U.S. Treasury's TARP commitments in the past year as programs have closed and banks have repaid taxpayer funds.
The new financial reform law limits Treasury's TARP authority to $475 billion and prevents it from taking on any new obligations. The Treasury said on Wednesday it is shrinking several programs and dropping a TARP small business lending program allocated at $30 billion.