The signature Obama program to ameliorate this crisis was the Home Affordable Modification Program, or HAMP, which helps homeowners modify their mortgages for lower monthly payments.

But the program has proven frankly disastrous — in many cases hurting the families it was meant to help. The administration expected it to help 3 to 4 million homeowners. It has aided a fraction of that, completing just 434,700 permanent modifications, according to the last scorecard. The process frequently takes months and requires applicants to file extraordinary amounts of paperwork. About half of applicants are rejected during the trial modification period. Worst, for many HAMP participants, their monthly mortgage payment barely goes down. Those homeowners often keep paying a mortgage they can’t afford for a while  before defaulting anyway, meaning the bank is the real winner.

Now, rather than doubling down and helping homeowners, the administration is shuttering, or at least shrinking, the program. As David Dayen noticed, a recent Treasury report on the Troubled Asset Relief Program tucks in the detail that the government is granting HAMP just half of the funds it originally allocated.

As for President Obama’s mortgage modification program, the CBO estimates that the Treasury Department will use no more than $20 billion of TARP funds, less than half of the $50 billion originally allocated. That’s because the CBO expects many fewer people will participate in the program than the government originally expected, a view held by many housing industry observers.

When Obama announced the program in February 2009, he said up to 4 million people could save their homes through the loan modification program, which lowers eligible borrowers’ monthly payments to no more than 31% of their pre-tax income. But more recently, officials have backtracked and said up to 4 million people could qualify for trial modifications, during which loan servicers assess their borrowers’ eligibility and ability to pay.

Through February, around 170,000 distressed homeowners have received long-term modifications under the program. Another $1.5 billion in TARP funds will be used to provide grants to state housing agencies in California, Arizona, Nevada, Florida and Michigan. These agencies are tasked with coming up with programs to assist the unemployed, the underwater who owe more than their homes are worth, and the second-lien holders.

All I can say is that I hope they funnel the additional $30 billion into other, better initiatives to help homeowners.

The government program is starting fewer trial modifications, moving on to fewer permanent modifications and kicking out more homeowners. Thus far, HAMP has kicked out 47 percent of participants. This comes the same week as a ProPublica investigation found widespread problems with the program, meant to significantly reduce monthly mortgage payments for distressed homeowners. Many have had their payments reduced by negligible amounts. Many have gotten bogged down in paperwork. Many have never received a rejection. Indeed, financial companies’ own programs to modify mortgages have worked far better.

The investigation polled 373 of homeowners seeking HAMP modifications. And it finds that not all is well. Here are some highlights pulled from the report:

• On average, [participants had] been seeking a modification for more than 14 months. The process is designed to last only a few months.
• Homeowners seeking modifications reported having to send the same documents nearly six times on average.
• 175 homeowners say they were advised, incorrectly, to fall behind on their mortgage in order to qualify for a modification.
• More than 200 homeowners said their servicer cited as missing documents that the servicer had never requested. Nearly 150 said their servicer falsely accused them of not responding to attempts to contact them, and 135 said a servicer had made an error in calculating their income.
• Most denied homeowners reported hearing different and sometimes conflicting reasons from different servicer employees for why they didn’t qualify for a modification. Two-thirds of those who had been denied — 174 customers — said they had that experience.

• Barbara J. Desoer, president of Bank of America Home Loans
• Ingrid Gould Ellen, professor of urban planning and public policy at New York University’s Wagner Graduate School of Public Service
• Bill Gross, co-founder and co-chief investment officer of PIMCO
• Mike Heid, co-president of Wells Fargo Home Mortgage
• S.A. Ibrahim, chief executive officer of Radian Group
• Marc H. Morial, president of the National Urban League
• Alex Pollock, fellow at the American Enterprise Institute
• Lewis Ranieri, chairman of Ranieri and Co.
• Ellen Seidman, executive vice president of ShoreBank Corp. and chair of the board at the Center for Financial Services Innovation
• Michael A. Stegman, director of policy for the Program on Human and Community Development of the John D. and Catherine T. MacArthur Foundation
• Susan Wachter, professor of financial management, real estate and regional planning at the University of Pennsylvania’s Wharton School
• Mark Zandi, chief economist of Moody’s Analytics

Affordable housing advocates criticized the list and argued against their exclusion, Zach Goldfarb at The Washington Post reports:

“Apparently being a community organizer qualifies you to be president, but it’s not good enough to be part of HUD and Treasury’s think tank on housing,” said NCRC chief executive John Taylor, whose group works with hundreds of community organizations to promote access to financial services for low- and middle-income people.

The criticism by affordable-housing advocates was notable because the Obama administration has so far paid much more attention to their concerns than previous administrations have. Advocates, for instance, had credited the administration with listening to community groups that argued that the government must do more to embrace rental housing for those who cannot afford to buy a home.

According to the Ethics Committee, around September 7, 2008 — the date that the government took over Fannie Mae and Freddie Mac — OneUnited CEO Kevin Cohee contacted Waters to ask for her help in setting up a meeting with officials at the Department of Treasury regarding the takeover of Fannie Mae and Freddie Mac. That takeover resulted in total losses to all Fannie and Freddie stockholders, including OneUnited [a bank on whose board Waters' husband used to sit, and a bank he remained invested in].

[...]

Waters called the Treasury Department on September 8, 2008 and arranged the meeting with Treasury for the National Bankers Association, a trade organization for minority- and women-owned banks of which OneUnited was a member. Though the AU investigation and Ethics Committee disagree whether anyone but OneUnited officials were in attendance, a group representing NBA and including executives from OneUnited met with Treasury Department officials on September 9, 2008 to discuss the impact of the Fannie and Freddie takeover on minority-owned banks. She then directed her chief of staff, Mikael Moore, to follow up on the results of the meeting.

At the same time, the Ethics Committee says, Waters had her chief of staff — Moore, her grandson — email Rep. Barney Frank (D-Mass.), the head of the House Financial Services Committee, to say the bank was in trouble. Frank advised Waters and her office to stay out of it because of her conflicts of interest. But she allegedly continued to intervene on the bank’s behalf. The bank ultimately received $12 million in Troubled Asset Relief Program funds. The Ethics Committee argues Waters’ husband would have lost money were it not for that bailout.

The Ethics Committee charges that Waters violated three rules: dispensing a favor, not acting “in a manner that shall reflect creditably on the House” and using her influence for personal benefit. Waters denies wrongdoing and has chosen to fight the charges.

Even the government’s own watchdog over HAMP — Neil Barofsky, the special inspector general over the Troubled Asset Relief Program — has blasted it as inefficient and ineffective at stopping the foreclosure crisis. He has also lambasted Treasury for sexing up its statements about the program:

Treasury clings to its prior statements that it plans to offer trial modifications to three to four million homeowners, a measure that SIGTARP has previously shown to be essentially meaningless. Treasury’s refusal to provide meaningful goals for this important program is a fundamental failure of transparency and accountability that makes it far more difficult for the American people and their representatives in Congress to assess whether the program’s benefits are worth its very substantial cost.

But now, James Pethokoukis reports at Reuters, the Obama administration might be pushing for a very, very big improvement to HAMP indeed. Rather than modifying mortgages, the Obama administration might instruct Fannie Mae and Freddie Mac to write down the mortgages, reducing the principal rather than the monthly payments:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages — one in five — are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

He describes the timing as political:

The president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

The question is whether this really is a good move politically if housing has stabilized. It will be expensive, very, very expensive. And my guess is that Republicans would love to campaign on this, easily and rightly characterized as a mass taxpayer bailout of underwater homeowners. For that reason, I would be surprised to see the administration do it. Forcing the banks to enact cramdown or changing bankruptcy laws would be one thing. But doing this through Treasury, politically, would be quite another.

Nevertheless, he points to very real and very significant signs of a turnaround:

• Exports are booming because American companies are very competitive and lead the world in many high-tech industries.
• Private job growth has returned — not as fast as we would like, but at an earlier stage of this recovery than in the last two recoveries. Manufacturing has generated 136,000 new jobs in the past six months.
• Businesses have repaired their balance sheets and are now in a strong financial position to reinvest and grow.
• American families are saving more, paying down their debt and borrowing more responsibly. This has been a necessary adjustment because the borrow-and-spend path we were on wasn’t sustainable.
• The auto industry is coming back, and the Big Three — Chrysler, Ford and General Motors — are now leaner, generating profits despite lower annual sales.
• Major banks, forced by the stress tests to raise capital and open their books, are stronger and more competitive. Now, as businesses expand again, our banks are better positioned to finance growth.
• The government’s investment in banks has already earned more than $20 billion in profits for taxpayers, and the TARP program will be out of business earlier than expected — and costing nearly a quarter of a trillion dollars less than projected last year.

What will really turn things around? Jobs. At some point, private employers, now hoarding cash with their profits, will return to picking up employees. That means Americans will be able to spend more, and the cycle will become virtuous again.

The report also notes that though Treasury Department programs are sunsetting and the financial market has stabilized, the size of the government intervention has ballooned in the past year. “Indeed, the current outstanding balance of overall federal support for the nation’s financial system … has actually increased more than 23 percent over the past year, from approximately $3.0 trillion to $3.7 trillion — the equivalent of a fully deployed TARP program — largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases,” Barofsky writes.

Where is all that money going? Mostly to Fannie Mae and Freddie Mac. The government has offered the two government-sponsored enterprises blank checks to keep the housing market stable. (I’ll note that once the government grants money to Fannie and Freddie, a majority of it trickles to banking and housing finance institutions, to cover losses on bad loans.) Washington has also amped up funds to Ginnie Mae and the Veterans Administration.

The House is currently working on a comprehensive reform bill for Fannie and Freddie — due sometime toward the end of the year.

The number of trial modifications is down 18.6 percent month-on-month. The number of permanent modifications is down 30 percent. The number of counseled borrowers has fallen by more than 200,000 from last quarter. The program continues to drop more than half of homeowners before their modifications become permanent. (Under the terms of the program, a homeowner and bank agree on lowered payments. The modification enters a trial period, where the homeowner has to demonstrate her earnings and ability to make payments. If she cannot, the modification is dropped.) The one silver lining is that around half of those dropped borrowers have received help from their banks’ modification programs, and only 7 percent have ended up in foreclosure.

Still, the report is sobering. HAMP has helped 346,000 homeowners receive a permanent modification — a good number, but a fraction of the number of homeowners the administration initially hoped to aid. The housing market remains weak, with 10 million homeowners underwater. And a recent Fitch Ratings report predicted that most borrowers who receive permanent modifications under HAMP will redefault anyway, because “the median ratio of total debt payments to pretax income is still 64 percent.” From the Wall Street Journal story on the Fitch report:

Fitch based the redefault forecast on the performance of loans that were modified in the first quarter of 2009. Those modifications were done outside of HAMP, which took effect later in the year. But [Diane Pendley, a managing director at Fitch] doesn’t expect a major difference between the results of HAMP modifications and those made under lenders’ programs.

Even if two-thirds of the loan modifications fail, Ms. Pendley said, that doesn’t mean HAMP is a failure. “If you can save one-third of the borrowers, I think it is worth the exercise,” she said. She also said the HAMP program, announced in early 2009, had provided a basic outline for loan servicers to follow in modifying loans. Loan servicers, often owned by banks, collect payments and handle foreclosures. Previously they were “all over the place” in their methods for dealing with foreclosures, Ms. Pendley said.

Cold comfort: At least if housing double-dips, loan servicers will be better at modifications. I think I’d prefer preemptive cramdown legislation.

The TARP program has never dispensed all of its funds — giving a total of $383 billion to big banks and auto firms, $187 billion of which has been paid back. Leaving the cap at $550 billion allows the administration some wiggle room to aid ailing banks if, for instance, housing double-dips. The government expects to ultimately break even on the program.