Last month TARP watch dog, Inspector General Neil Barofsky, blasted the Home Affordable Modification Program (HAMP) program as an ineffectual waste of money that had no built-in way to measure its results. A whistle-blower filed a law suit in June that may explain why the program didn’t work.
The Whistle-blower, Fannie Mae consultant Caroline Herron says she was fired after revealing that the troubled financial institution was hindering — not helping — homeowners in trouble. The former executive says Fannie Mae put improving its own bottom line ahead of an Obama administration program’s goal of helping homeowners avoid foreclosure.
HAMP is a Treasury Department-run program, but the department hired Fannie to run the program.
“Their only interest should have been to look out for the American taxpayers,” says Herron’s lawyer, Lynne Bernabei. (Herron isn’t giving interviews because of a nondisclosure agreement with Fannie.)
“There was a tremendous — millions and millions of dollars that was wasted on a program that a lot of people, Caroline included, said wasn’t functioning in the way it should be,” Bernabei says.”
Herron charges that Fannie took advantage of one part of its contract to steer borrowers into the short-term part of HAMP, which served Fannie but hurt the borrowers’ chances of keeping their homes.
“Herron charges that Fannie Mae continued in headlong pursuit of “trial mods” even though it knew many had little chance of becoming permanent. As late as September 2009, barely 1 percent of trial modifications had converted to permanent modifications by the end of their three-month trial, a Congressional oversight panel found. Nevertheless, Fannie preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications it booked before the end of 2009.
As of February 2010, 83 percent of the 1 million active modifications being handled by HAMP were trials rather than permanent arrangements. Barofsky, the special inspector general, criticized HAMP’s focus on trial modifications in a recent report.”
John Stossel has offered $1,000 if someone can come up with an example of something that the Government does better than private enterprise, it doesn’t look as if HAMP is going to cost him anything.
“But in another example, the Treasury Department wanted HAMP to have a website where homeowners could upload documents and communicate with lenders.
A firm called Default Mitigation Management builds just such a Web portal. “We offered to deliver to them a solution that had already been working, that addressed all of their concerns,” its chief operating officer, Igor Roitburg, says of Fannie Mae.
But after asking for bids, Fannie Mae scrapped the whole idea of the Web portal and picked another system — one that drives homeowners to professional counselors for access.
Jack Guttentag, professor emeritus at the Wharton School, says that option just gums up the works.”You have these intermediaries. You have counselors. It’s a complicated and messy and inefficient process,” he says”
Republican Spencer Bachus, ranking member on the House Financial Services Committee, sent a letter to panel chairman Barney Frank to hold a hearing to investigate the allegations made by Caroline Herron.
“If true, it would help explain why HAMP has been such a failure,” said Bachus.
“It would mean that thanks to Fannie Mae’s executives’ misfeasance, particularly a preoccupation with short-term financial gain, HAMP was only able to permanently modify about 230,000 mortgages, instead of the 3 million modifications that the Obama Administration promised,” he said.
Unfortunately, there is no possibility that Barney Frank will agree to a hearing that will be embarrassing to the Obama Administration, nor will he allow an investigation of Fannie Mae, one of his sacred cows. So in the end the full truth will never be known.