Wednesday, March 17, 2010

TARP Inspector Barofsky Puts HAMP Under the Microscope


Original posted on the Housing Wire by Jon Prior:

Neil Barofsky, special inspector general to the Troubled Asset Relief Program (TARP), initiated an audit of the Home Affordable Modification Program (HAMP), according to a letter from Barofsky’s office to Sen. Jeff Merkley (D-Ore.).

The US Treasury Department allocated $75bn from the TARP fund to HAMP when the program launched in March 2009. Through February, those 113 servicers provided more than 170,000 permanent modifications. Critics of the program point out that the numbers are far short of the 3-to-4m target set by the Obama Administration last year and claim the program doesn’t address key difficulties for troubled loans.

Barofsky will conduct the audit after receiving a letter from Merkley, addressing concerns over the program’s formula for the Net Present Value of a troubled loan. The NPV refers to the value-to-date of a cash-generating investment, such as a mortgage. When a borrower falls behind on the payments, the investor or servicer generates an NPV for the loan “as-is” or if it is modified. If the NPV of modified loan is higher, the modification is said to be “NPV positive.”

Under HAMP guidelines, if the loan is “NPV postive” after modification, the servicer must provide the workout if it is to receive the incentive payment.

Barofsky’s audit will investigate whether or not the servicers are correctly applying the NPV test under the program and how much the Treasury is doing to ensure cooperation. Barofsky will also look at how servicers are communicating to borrowers that their NPV test has failed and how they identify any other options for borrowers.

The House Committee on Oversight and Government Reform, also began an investigation of HAMP in February on concerns of the “effectiveness and efficiency” of the program.

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