The Obama administration’s foreclosure-prevention effort has been ineffective in tackling the foreclosure crisis, the watchdog for the federal bank bailouts said Monday.
Neil Barofsky said Treasury officials are falsely claiming that the program has helped more than 1.3 million homeowners, even though fewer than half of them have received permanent changes to their mortgages through the government’s plan.
The administration’s claim it has “helped” everyone who entered the program “is either hopelessly out of touch, or it’s really a cynical attempt to try to define failure as success,” said Mr. Barofsky, the inspector general for the $700 billion Wall Street rescue.
About 729,000 homeowners who were initially accepted into the program to have their mortgage payments lowered have been disqualified through September, the Treasury Department said Monday. That’s about 53 percent of the nearly 1.4 million who were enrolled in the program over the past year.
Roughly 467,000 borrowers, or 34 percent of those enrolled in the program, have received permanent loan modifications and are making their payments on time.
Mr. Barofky’s report came out as Federal Reserve Chairman Ben S. Bernanke said federal banking regulators are “intensively” examining whether mortgage companies cut corners on their own procedures when they moved to foreclose on people’s homes.
Preliminary results of the in-depth review of the practices of the nation’s largest mortgage companies are expected to be released next month, the central bank chief said in remarks to a housing-finance conference in Arlington, Va.
“We are looking intensively at the firms’ policies, procedures and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures,” Mr. Bernanke said. “We take violation of proper procedures very seriously.”
The central bank’s decision adds weight to federal and state investigations into whether banks used flawed documents to foreclosure on homeowners.
Attorneys general in all 50 states plus the District of Columbia are jointly investigating whether paperwork and legal procedures were handled properly. At the federal level, the Treasury Department’s Office of the Comptroller of the Currency last month asked seven big banks to examine their foreclosure practices. The OCC and the Federal Deposit Insurance Corp. are also working with the Fed in its examination.
Mr. Barofsky’s report also disclosed for the first time that the two other pieces of the housing-assistance plan have fallen flat.
Only 342 households to date have benefited from a program that pays banks incentives to complete so-called short sales - when the bank allows the borrower to sell their home for less than they owe on the mortgage. And only 21 homeowners have received help paying down second mortgages.
Both of those programs were announced with fanfare last year.
The main Obama plan was designed to help people in financial trouble by lowering their monthly mortgage payments. Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period. The average monthly payment has been cut by about $500.
The homeowners receive temporary modifications. These are supposed to become permanent after borrowers make three payments on time and complete the required paperwork. That includes proof of income and a letter explaining the reason for their troubles. In practice, though, the process has taken far longer.