SIGTARP: Hardest Hit Spent 3% of Budget, Program Lacks Participants

As of December 31, 2011, the Hardest Hit Fund (HHF), which is meant to fund “innovative measures” to help families through the housing crises in hardest hit states, has spent just 3 percent of its budget since its February 2010 inception, a report published by a watchdog agency for taxpayers revealed Thursday.

More specifically, as of the end of 2011, HHF spent $217.4 million of the $7.6 billion available for the program, and has provided assistance to just 30,640 homeowners, which is about 7 percent of the 458,632 to 486,536 homeowners it is estimated to help over the life of the program, which ends in 2017.

The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released the report after reviewing the Treasury’s decision making related to HHF. SIGTARP was created to investigate the uses of TARP funds, which provided the dollars for HHF.

SIGTARP said in the report that the program has experienced significant delay in helping homeowners due to several factors, and named a lack of “comprehensive planning by Treasury” as one of the reasons for the delay, stating the department “rushed out the program.”

“Treasury’s decision to give one to two days’ notice to states and six to eight weeks to develop programs caught several states off guard,” the report stated.

Lack of participation by large servicers and Fannie Mae and Freddie Mac was the other reason cited for delays.

“Several states delayed HHF programs because the large mortgage servicers were not participating. Several [housing finance agencies] told SIGTARP that their primary challenge was the lack of servicer participation,” according to the report.

Also, about 78 percent of the help was for unemployment assistance.

Overall, Treasury approved HHF programs in five categories of assistance – principal reduction, second lien reduction, reinstatement through payment of past due amounts, unemployment, and transition assistance such as short sale, deed-in-lieu, or relocation assistance.

“Without significant change, while the Hardest Hit Fund may be able to reach unemployed homeowners as was originally intended, it is likely to be limited in addressing negative equity for homeowners who are underwater,” the report stated, referring to lack of participation from servicers and the GSEs.

“GSEs examined principal reduction in connection with HHF and concluded that principal reduction could increase moral hazard by incentivizing homeowners to become delinquent on their mortgages. Without GSE buy-in, large servicers generally would not agree to participate in HHF principal reduction, and transition assistance programs for those loans with the GSEs.,” the watchdog group reported.

SIGTARP stated that one large servicer told the agency that 80 percent of its portfolio is with the GSEs, and another large servicer said 60 to 80 percent of its servicing book is
GSE loans.

Originally announced as $1.5 billion program, HHF grew to 7.6 billion, and went from covering five states to 18 and the District of Columbia.

SIGTARP outline recommendations in the report, including setting meaningful and measurable performance goals including a minimum number of homes to be helped, setting milestones for the state housing finance agencies, publishing on a quarterly basis details such as the number of homeowners assisted, amounts drawn by states, dollars expended for assistance, among others recommendations.

By: Esther Cho