Troubled Asset Relief Program: Treasury Actions Needed to Make the Home Affordable Modification Program More Transparent and Accountable

According to Treasury, it revised the Home Price Decline Protection (HPDP) program design subsequent to the issuance of GAO's July 2009 report to improve the targeting of incentive payments to mortgages that are at greater risk of default because of home price declines. Treasury provided GAO with a sensitivity analysis performed on a large sample of Home Affordable Modification Program(HAMP)-eligible loans that were 60 days or more delinquent. The sensitivity analysis applied the HAMP net present value (NPV) model to a sample of loans both with and without the potential HPDP payments, and the pass rates were examined for various loan characteristics.

As of January 31, 2011, Treasury estimated that there are approximately 1.4 million Home Affordable Modification Program (HAMP)-eligible borrowers. Treasury derived this estimate based on the Mortgage Bankers Association (MBA) National Delinquency Survey (Q4 2010) data for 1st lien 60+ day delinquencies (5.0 million) and subtracting (1) the market share estimate of servicers not participating in HAMP (~0.5 million), (2) the market share estimate of Federal Housing Authority/Department of Veterans Affairs loans (~0.8 million), (3) the estimate of non-owner occupied loans at origination (~0.6 million), (4) loans originated after January 1, 2009, (5) non-conforming and jumbo loans (~0.2 million), (6) estimation of borrowers with a debt-to-income ratio of less than 31 percent (~0.8 million), (7) estimation of negative net present value test results (~0.2 million); and (8) vacancies and other exclusions (~0.5 million). According to Treasury, this estimate is revised regularly, as the MBA National Delinquency Survey is published quarterly and other estimates are revised to reflect updated data. Treasury publishes the results of its estimate in its monthly program performance reports.

Treasury hired a permanent Chief Homeownership Preservation Officer on November 9, 2009. Based upon input from Homeownership Protection Office (HPO) senior staff, the Chief Homeownership Preservation Office subsequently evaluated the staffing levels and expertise of HPO and consequently reduced the staffing levels for HPO. Since then, Treasury indicated that HPO's staffing needs have been and are continuously evaluated to determine whether its staffing levels are sufficient and appropriate to effectively fulfill its HAMP governance responsibilities. For example, bi-weekly staff check-ins are held with HPO senior staff and succession planning meetings are held with the Assistant Secretary for Financial Stability, HPO senior staff and Chief Operations Officer (COO) senior staff. Additionally, workforce planning meetings are routinely held with the Assistant Secretary for Financial Stability, HPO senior staff and COO senior staff. These meeting have resulted in a number of staffing changes as evidence by changes in HPOs organization chart over time.

Treasury has engaged the services of Fannie Mae and Freddy Mac as financial agents as part of its efforts to establish and maintain a system of internal control over Home Affordable Modification Program (HAMP). Fannie Mae acts as the Making Home Affordable (MHA) program administrator and Freddie Mac acts the compliance agent for the program. In turn, Treasury has implemented a formal process for oversight of Fannie Mae's and Freddy Mac's MHA activities through its MHA Governance Committee, the MHA Compliance Committee, and the HAMP Budget and Compensation Review Committee. Each committee is comprised of representatives of HPO, Chief Financial Officer, OFS-Compliance and Treasury?s Office of Financial Agents (OFA). According to Treasury, Weekly meetings of the Governance and Compliance Committees are also attended by staff from OFS' Office of the Chief Counsel, and representatives of the GSEs and the Federal Housing Finance Agency (FHFA) in its role as Conservator, attend all three. The MHA Governance Committee oversees operational implementation of HAMP by Fannie Mae, including key initiatives, performance tracking and reporting processes, reviews servicer adoption and performance of HAMP, identifies and recommends potential enhancement(s) to programs or to implementation requirements, and serves as a forum to facilitate communication among stakeholders and other related parties. Freddie Mac in its capacity as the MHA compliance agent (MHA-C), is overseen by OFS-Compliance and reports all compliance results to the Compliance Committee. The Compliance Committee reviews the results of all compliance activities to ensure consistent evaluation of servicers. MHA-C compliance activities have primarily focused on ensuring that homeowners are appropriately treated in accordance with HAMP guidelines. Components of the compliance program include: on-site reviews, NPV model reviews, incentive payment reviews, and loan file reviews including the process known as "Second Look." Second Look loan file reviews evaluate those loans that have not been offered HAMP modifications to ensure that the exclusion was appropriate.

In January, 2010 Treasury finalized and began implementing a self-assessment form to be completed by prospective servicers as they apply to participate in HAMP. These self-assessments are used by Treasury to determine whether or not to admit the servicer into HAMP, and to inform future compliance reviews of the servicer. Using the self-assessment form, prospective servicers describe their capacity to utilize a net present value model to assess borrowers for a loan modification, and to complete basic HAMP reporting requirements. Treasury retroactively applied this form to servicers that began program participation in December 2009, and has received completed self-assessments from all of the servicers that began participation after January 2010. According to Treasury, some of the servicers decided to drop out of the HAMP program after completing the self-assessment and determining that they lacked the necessary capacity to meet the program's requirements.