Troubled Asset Relief Program

To restore stability and liquidity to the financial system, Congress established the $700 billion Troubled Asset Relief Program (TARP) and directed the Department of the Treasury (Treasury) to use the authorities granted under TARP to, among other things, preserve homeownership and protect home values. In February 2009, Treasury announced that up to $50 billion in TARP funds had been allocated to help struggling homeowners avoid potential foreclosure. However, the number of borrowers facing potential foreclosure has remained at historically high levels. In fact, in the first 2 years of the TARP-funded Home Affordable Modification Program (HAMP), more borrowers were denied or canceled from trial loan modifications than were given permanent modifications. In three prior reports, we looked at the implementation of HAMP and made several recommendations that were intended to address the challenges that Treasury faced in implementing the program. To better understand the experience of borrowers seeking HAMP modifications, we conducted a Web-based survey of housing counselors through the National Foreclosure Mitigation Counseling Program (NFMC) to obtain the counselors' perspectives of borrowers' experiences with HAMP. NFMC is administered by NeighborWorks America and funds approximately 130 grantees and 1,700 subgrantees to conduct foreclosure mitigation counseling. We reported on some of the survey's findings in our March 2011 report but expand on them in this correspondence. The survey was designed to obtain information on (1) borrowers' overall experiences with HAMP, (2) HAMP trial modification denials, (3) HAMP trial modifications, (4) the HAMP Solution Center, (5) ways Treasury could improve HAMP, and (6) proprietary (non-HAMP) modifications. This correspondence summarizes the results of each of the six survey segments. The survey and a more complete tabulation of the results from 396 counselors can be viewed at GAO-11-368SP..

Roughly 76 percent of the 394 counselors characterized borrowers' overall experiences with HAMP--from the time they first inquired to the point at which they received a decision--as "negative" or "very negative." In contrast, less than 9 percent of counselors described borrowers' overall experience with HAMP as "positive" or "very positive." Roughly 40 percent of the 312 counselors that provided written comments on their experiences with HAMP said that they had experienced difficulties working with servicers. Roughly 39 percent said paperwork had been lost or needed to be resubmitted. According to Treasury's HAMP guidelines, servicers are required to notify borrowers that they have been approved for or denied a trial modification within 30 days of receiving a complete HAMP application package. However, over 86 percent of counselors who responded to our survey said that it typically took 4 months or more for borrowers to receive a decision about a HAMP trial modification from the time the borrower requested it. Nearly 46 percent said that the process typically took 7 months or more. HAMP guidelines require that borrowers successfully complete a 90-day trial period, during which they make all the required payments on time before they can become eligible for conversion to a permanent modification. However, as of September 30, 2010--around the time of our survey--76,500 active trials (44 percent of all active trials) had been in place for 6 months or more. Nearly all of the counselors we surveyed (96 percent) said trial periods typically lasted longer than 3 months, and 50 percent of these counselors said that trial periods typically lasted 7 months or more. Treasury has reported that one of the most common reasons for canceling trial modifications is insufficient documentation. However, Treasury indicated that it was unable to determine whether borrowers had not submitted the required documentation or servicers had lost or misplaced it. According to 96 percent of the counselors we surveyed, "servicer continues to request borrower's updated financial documentation" was one of the three principal challenges borrowers faced in providing the required documentation. In addition, over 78 percent of the counselors ranked "servicer lost the borrower's documentation" as one of the three highest challenges. According to Treasury, roughly 21,000 complaints had been escalated to the HAMP Solution Center as of February 2011, with roughly a quarter of these submitted by housing counselors. Treasury officials told us that of these escalated complaints, roughly 17,000 had been resolved, with 32 percent of the resolved cases resulting in a permanent HAMP modification, consideration for a HAMP trial modification, or the initiation of a trial modification. To improve the rate of successful modifications, counselors most often said that Treasury should enforce sanctions on servicers that did not comply with HAMP guidelines (60 percent). Treasury told us that it had asked servicers to rectify issues associated with noncompliance and in some cases had withheld financial incentives but had not yet finalized consequences for noncompliance. Counselors also cited the need for Treasury to require servicers to make more timely decisions (51 percent) and to ensure that servicers worked with borrowers who were not yet 60 days delinquent (41 percent). Borrowers who are not helped by HAMP may be helped by non-HAMP, or proprietary modifications, which may offer greater flexibility.

E-supplements Troubled Asset Relief Program: Survey of Housing Counselors about the Home Affordable Modification Program (GAO-11-368SP, May 2011), an E-supplement to GAO-11-367R