) -- In a harshly critical report on Tuesday, the congressional watchdog that oversees the federal bailout program said the U.S. Treasury Department's homeowner-rescue efforts have been poorly structured, wasteful and largely "ineffective."

The report by the Congressional Oversight Panel estimated that one crucial component called the Home Affordable Modification Program, or HAMP, may only prevent 700,000 to 800,000 foreclosures - a fraction of the 3 million to 4 million borrowers the Obama administration initially promised assistance to and "vastly fewer" than the 8 million to 13 million foreclosures expected to have occurred by 2012.

The panel also criticized the Treasury Department for poor data collection, refusing to acknowledge HAMP's ineffectiveness by adjusting its goals and outsourcing oversight of the program to

Fannie Mae



Freddie Mac


, which have conflicts of interest with mortgage servicers that participate in HAMP. Finally, the panel said Treasury hasn't been proactive enough in reprimanding servicers for paperwork errors or taking early action when borrowers enrolled in HAMP begin to fall behind on payments once again.

"Each redefault represents thousands of taxpayer dollars that have been spent merely to delay rather than prevent a foreclosure," says the report. It later goes on to say that, "had Treasury acknowledged this reality before its crisis authority expired, it could have made material changes to HAMP or reallocated the money to a more effective program. Now, that option is gone."

The Obama administration rolled out HAMP in February 2009 as a savior for struggling borrowers. The program offered incentives to participating mortgage servicers who agreed to modify loans, either through interest rate reductions, extended payment timeframes or reductions in principal.

Yet the program has been plagued with problems - first because banks weren't prepared for the deluge of applications, then because of paperwork problems and miscommunication, then because many borrowers didn't qualify and finally because the loans couldn't be modified in a way that was profitable to the mortgage holder or loan servicer.

Second liens represented an additional hurdle for borrowers who met all of the other requirements.

"HAMP's straightforward plan to encourage modifications has proven ineffective in practice," said the panel report.

The Treasury Department has unveiled changes and add-ons to HAMP, including a second-lien program and providing funds directly to the "hardest hit" states. Still, the vast majority of borrowers who do have a successful loan modification receive it from in-house programs at large servicers like

Bank of America

(BAC) - Get Report


JPMorgan Chase

(JPM) - Get Report


Wells Fargo

(WFC) - Get Report



(C) - Get Report


U.S. Bancorp

(USB) - Get Report


Although the Treasury Department has continued to predict that HAMP will spend the full $30 billion apportioned through the Troubled Asset Relief Program, the Congressional Budget Office recently estimated that all of the Treasury's foreclosure-prevention efforts will cost just $12 billion. The Oversight Panel report estimates that HAMP will result in just $4 billion in spending.


examined the problems of HAMP in a series called

"Mortgage Mayhem" in August. It covered the difficulties borrowers face with

the government,

banks and

opportunists seeking to profit from the housing market's collapse.

In an interview at the time, spokeswoman Andrea Risotto said that while HAMP had its difficulties along the way, one of its main accomplishments was getting large banks to switch from a collection model to a modification model to implement successful programs on their own. She also said that the Treasury tried to be flexible to the reality on the ground by adding new programs to prevent foreclosure and adjusting existing ones.

"We know there have been many homeowners who have been struggling and we've tried to remain responsive to that," Risotto said. "...At the end of the day, homeowners have to be their own best advocates."


Mortgage Mayhem: Homeowners Stranded

Treasury Responds to Mortgage-Mod Criticism

Mortgage Mayhem: Banks Doing Too Little Too Late

Mortgage Mayhem: Second Liens Become Sticking Point

Mortgage Mayhem: Opportunists Sprout Up

One Homeowner's Cautionary Tale

-- Written by Lauren Tara LaCapra in New York


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