Highlights from the Special Inspector General for TARP’s latest Report:
UPDATE ON UNIMPLEMENTED
RECOMMENDATIONS CONCERNING HAMP
TARP’s signature housing program, HAMP, has not provided enough sustainable
foreclosure relief given the unspent TARP funds that Treasury has set aside.
HAMP’s foreclosure relief is only sustainable if the homeowner does not fall out
of the permanent mortgage modification during the five year period, increasing the
risk of foreclosure.
As of June 30, 2014, only 958,549 homeowners were active in a HAMP
permanent modification. Treasury continues to extend the application period
for MHA programs such as HAMP, and did so again on June 26, 2014, further
extending MHA programs for another year, through December 31, 2016.
An extension of HAMP’s timeframe is not enough on its own to bring about
meaningful change, particularly as hundreds of thousands of homeowners who got
into HAMP, fell prematurely out of the program. Treasury must help homeowners
using TARP with the same effort it put toward bailing out banks, the auto
companies, and AIG. Hopefully, Treasury’s HAMP extension reflects a realization
that Treasury has not, in fact, provided sustainable foreclosure relief to enough
homeowners using TARP. With approximately $15.7 billion in TARP funds for
HAMP sitting unspent, Treasury has ample resources to help the tens of thousands
of homeowners still applying each month for a HAMP modified mortgage.
During the month of May 2014 alone, more than 87,000 struggling homeowners
continued to seek help through HAMP.
Treasury needs meaningful reform to HAMP to dramatically change the current
levels of HAMP assistance reaching homeowners. Treasury should constantly
explore ways to improve HAMP rather than relying on servicers to act differently
than they acted in the past. SIGTARP is committed to working with Treasury to
ensure the efficiency and effectiveness of TARP and to prevent fraud, waste, and
abuse of taxpayers’ dollars funding HAMP. Through SIGTARP’s investigations,
hotline, and otherwise, SIGTARP has learned about the difficulties homeowners
continue to experience while trying to get into HAMP, particularly based on alleged
misconduct by HAMP servicers, and has reported on these difficulties publicly on
several occasions. This quarter, SIGTARP reported on the results of a SIGTARP
criminal investigation, conducted with its law enforcement partners, and a nonprosecution
agreement with TARP recipient, SunTrust Banks, Inc., the parent of
SunTrust Mortgage, Inc., (collectively, “SunTrust”).
SIGTARP’s criminal investigation of SunTrust’s administration of its HAMP
program revealed that SunTrust made material misrepresentations and omissions
to homeowners in HAMP solicitations. SunTrust did not have adequate personnel,
infrastructure, or technological resources in place to process the paperwork,
render decisions, and communicate with and about homeowners, as represented
in 2009 and 2010. Because SunTrust’s HAMP program was under-resourced and
under-funded, month after month, a backlog of tens of thousands of homeowners
were left waiting to apply for HAMP, waiting for SunTrust to send a trial period
agreement, or waiting to hear whether they qualified for their much-needed
mortgage relief. For example, SunTrust put piles of unopened homeowners’ HAMP
applications and paperwork on an office floor until the floor buckled under the
sheer weight of the unopened HAMP applications. SunTrust lost documents and
paperwork. SunTrust mass-denied some homeowners for HAMP without reviewing
their HAMP applications. SunTrust lied to Treasury about the reasons for the
denials. Rather than rendering decisions on a permanent modification within the
three- to four-month trial period SunTrust represented, some homeowners were
stuck in limbo in extended trial modifications of two or more years. SunTrust
misreported current homeowners as delinquent to major credit bureaus. In
other instances, SunTrust denied HAMP modifications to eligible homeowners
and instead placed the homeowners in alternative, private modifications that
were less favorable. SunTrust improperly commenced foreclosure proceedings
on homeowners in active HAMP trial periods, and some of those homeowners
saw their homes listed by SunTrust for sale in local newspapers. As a result of
SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a
HAMP modification with SunTrust suffered serious financial harm. Homeowners
would have been exponentially better off having never applied for HAMP through
the bank in the first place.
SunTrust’s management of the program harmed the homeowners that HAMP
was designed specifically to assist. Real people lost their homes, and many others
faced financial ruin. SIGTARP and its law enforcement partners continue to root
out fraud related to TARP’s housing programs and will hold those responsible
accountable. These law enforcements efforts will hopefully deter future
misconduct and, where necessary, force institutions to change their culture.
SIGTARP is concerned that similar misconduct, negligence, or poor, shoddy
performance by servicers that does not rise to the level of violating the law, could
be preventing struggling homeowners eligible for HAMP from obtaining available
relief. SIGTARP spotlights one of those issues this quarter in a special report on
the more than 221,000 homeowners that have applied for HAMP but are still in
limbo, with no decision from their servicer.
To enact meaningful change in TARP’s housing programs, Treasury should first
start by implementing SIGTARP’s many ignored recommendations. Since 2009,
SIGTARP has made 50 recommendations to Treasury concerning improvements
to TARP’s housing programs and to prevent fraud, waste, and abuse of taxpayer
dollars used to support struggling homeowners. While Treasury has implemented
some of SIGTARP’s recommendations, 44 of those 50 recommendations (88%)
remain unimplemented. SIGTARP’s recommendations are based on concerns we
uncover in our investigations, audits, public hotline, and other oversight activities.
We cannot always share our findings with Treasury, for example, when we are
conducting a confidential criminal investigation. Any reasons Treasury has given for
not implementing SIGTARP’s recommendations are not good enough.
SIGTARP has issued a series of recommendations aimed at the process by
which a homeowner gets into HAMP. For example, SIGTARP has previously
- Treasury should establish benchmarks and goals for acceptable program
performance for all MHA servicers, including the length of time it takes for trial
modifications to be converted into permanent modifications, the conversion rate
for trial modifications into permanent modifications, the length of time it takes
to resolve escalated homeowner complaints, and the percentage of required
modification status reports that are missing.
Implementing this recommendation could have gone a long way to fix the
extended trial periods at SunTrust. Moreover, the concern extends beyond
SunTrust. Treasury’s HAMP data shows that thousands of homeowners across
multiple servicers are in trial periods of six months or more. This is not always the
homeowner’s fault. Benchmarks for acceptable performance brings accountability
if the servicer denies the homeowner permanent assistance after being in a lengthy
trial period. After such a lengthy trial period, the homeowner could owe a balloon
payment of the total amount difference between the mortgage payments and the
trial period payments. That required payment could be so large that it is impossible
to make, leaving the homeowner headed towards foreclosure. For example, the
latest data collected by Treasury from the 137 HAMP servicers with active trial
modifications indicates that the average monthly savings from homeowners in trial
periods lasting six months or longer was $472. If servicers deny that homeowner
permanent HAMP assistance at the end of the six month period, the average
homeowner would have to pay $2,835. Treasury’s data indicates that the payment
could be much higher. In one of several similar examples, a homeowner who is
saving $3,351 per month and has been in a trial modification since December
2011 could be required to pay back almost $100,000 if rejected from HAMP.
Worse yet, some homeowners were current on payments when they entered HAMP
trial modifications, but after being denied permanent modifications, were worse off
than if they had not applied at all.
SIGTARP’s recommendations are designed to help protect homeowners,
including the following recommendations that have not been implemented by
Treasury, to help additional homeowners get a permanent mortgage modification
Treasury should publicly assess the top 10 MHA servicers’ program performance
against acceptable performance benchmarks in the areas of: the length of time
it takes for trial modifications to be converted into permanent modifications, the
conversion rate for trial modifications into permanent modifications, the length
of time it takes to resolve escalated homeowner complaints, and the percentage
of required modification status reports that are missing.
- Treasury must ensure that all servicers participating in MHA comply with
program requirements by vigorously enforcing the terms of the servicer
participation agreements, including using all financial remedies such as
withholding, permanently reducing, and clawing back incentives for servicers
who fail to perform at an acceptable level. Treasury should be transparent and
make public all remedial actions taken against any servicer.
- Treasury should stop allowing servicers to add a risk premium to Freddie Mac’s
discount rate in HAMP’s net present value test.
- Treasury should ensure that servicers use accurate information when evaluating
net present value test results for homeowners applying to HAMP and should
ensure that servicers maintain documentation of all net present value test
inputs. To the extent that a servicer does not follow Treasury’s guidelines on
input accuracy and documentation maintenance, Treasury should permanently
withhold incentives from that servicer.
- Treasury should require servicers to improve their communication with
homeowners regarding denial of a HAMP modification so that homeowners can
move forward with other foreclosure alternatives in a timely and fully informed
- To the extent that a servicer does not follow Treasury’s guidelines on
these communications, Treasury should permanently withhold incentives from
- To ensure that homeowners in HAMP get sustainable relief from foreclosure,
Treasury should research and analyze whether and to what extent the conduct
of HAMP mortgage servicers may contribute to homeowners redefaulting
on HAMP permanent mortgage modifications. To provide transparency and
accountability, Treasury should publish its conclusions and determinations.
- Treasury should publicly assess and report quarterly on the status of the ten
largest HAMP servicers in meeting Treasury’s benchmark for an acceptable
homeowner redefault rate on HAMP permanent mortgage modifications,
indicate why any servicer fell short of the benchmark, require the servicer to
make changes to reduce the number of homeowners who redefault in HAMP,
and use enforcement remedies including withholding, permanently reducing, or
clawing back incentive payments for any servicer that fails to comply in a timely
- In order to protect against the possibility that the extension and expansion of
HAMP will lead to an increase in mortgage modification fraud: (a) Treasury
should require that servicers provide the SIGTARP/CFPB/Treasury Joint Task
Force Consumer Fraud Alert to all HAMP-eligible borrowers as part of their
monthly mortgage statement until the expiration of the application period for
HAMP Tier 1 and 2; and (b) Treasury should undertake a sustained public
service campaign as soon as possible both to reach additional borrowers who
could potentially be helped by HAMP Tier 2 and to arm the public with
complete, accurate information about the program to avoid confusion and delay,
and to prevent fraud and abuse.
- Given the expected increase in the volume of HAMP applications due to the
implementation of HAMP Tier 2, Treasury should convene a summit of key
stakeholders to discuss program implementation and servicer ramp-up and
performance requirements so that the program roll-out is efficient and effective.
SIGTARP made recommendations designed to curb the growing number of
homeowners who fall out of a HAMP permanent modification prematurely. If the
current trend continues, large percentages of homeowners will continue to fall out
of HAMP permanent mortgage modifications and Treasury will have missed an
opportunity to use TARP to provide sustainable relief to as many homeowners as
possible. For example, SIGTARP recommended:
- Treasury should conduct in-depth research and analysis to determine the
causes of redefaults of HAMP permanent mortgage modifications and the
characteristics of loans or the homeowner that may be more at risk for redefault.
Treasury should require servicers to submit any additional information that
Treasury needs to conduct this research and analysis. Treasury should make the
results of this analysis public and issue findings based on this analysis, so that
others can examine, build on, and learn from this research.
Although Treasury has agreed to implement this important recommendation,
the results of Treasury’s ongoing efforts remain unclear and unknown. Meanwhile,
homeowners continue to redefault from HAMP. Since SIGTARP made that
recommendation in April 2013, more than 85,890 homeowners have redefaulted
out of HAMP.
For similar reasons, to address the alarming rate of redefaults, SIGTARP made
the following recommendations, which remain unimplemented:
- As a result of the findings of Treasury’s research and analysis into the causes
of HAMP redefaults, and characteristics of redefaults, Treasury should modify
aspects of HAMP and the other TARP housing programs in ways to reduce the
number of redefaults.
- Treasury should require servicers to develop and use an “early warning system”
to identify and reach out to homeowners that may be at risk of redefaulting
on a HAMP mortgage modification, including providing or recommending
counseling and other assistance and directing them to other TARP housing
- In the letter Treasury already requires servicers to send to homeowners who
have redefaulted on a HAMP modification about possible options to foreclosure,
Treasury should require the servicers to include other available alternative
assistance options under TARP such as the Hardest Hit Fund and HAMP Tier\2, so that homeowners can move forward with other alternatives, if appropriate,
in a timely and fully informed manner. To the extent that a servicer does not
follow Treasury’s rules in this area, Treasury should permanently withhold
incentives from that servicer.
- Treasury should increase the amount of the annual incentive payment paid to
each homeowner who remains in HAMP. Treasury should require the mortgage
servicer to apply the annual incentive payment earned by the homeowner to
reduce the amount of money that the homeowner must pay to the servicer
for the next month’s mortgage payment (or monthly payments if the incentive
exceeds the monthly mortgage payment), rather than to reduce the outstanding
principal balance of the mortgage.
SIGTARP looks forward to continuing its work with Treasury on implementing
SIGTARP’s recommendations, especially these crucial recommendations
concerning TARP’s housing programs, to ensure homeowners obtain the affordable
and sustainable relief Treasury intended.