* Bailout watchdogs criticize Obama housing programs
* Treasury needs more realistic goals - Barofsky
* Total U.S. govt financial system support seen at $3.7
(Adds comments from U.S. Treasury official)
By David Lawder
WASHINGTON, July 21 Obama administration
housing rescue programs have been ineffective at preventing a
rise in home foreclosures even as the government's support for
the mortgage market grew by nearly $700 billion in the past
year, U.S. bailout watchdogs said on Wednesday.
Neil Barofsky, special inspector general for the Troubled
Asset Relief Program, heaped more criticism on the Treasury for
its failure to adopt more realistic goals for the number of
people expected to benefit from its program to modify mortgages
and slash monthly payments.
"Treasury's continued indications that this is a successful
program without identifying these goals and benchmarks is
simply not credible," Barofsky told the U.S. Senate Finance
Committee. "And I fear that the growing public suspicion that
this program is an outright failure will continue unless and
until Treasury adopts this recommendation and comes clean with
what its goals and expectations are."
The Treasury has stated its goal for the $75 billion Home
Affordable Modification Program was to cut monthly payments for
3 million to 4 million "responsible" homeowners by the end of
2012 -- excluding speculators or those who bought vacation
The Treasury released figures this week showing it had
assisted 1.3 million homeowners so far, but over 40 percent of
them -- around 530,000 -- have dropped out of the program. In
fact, more borrowers dropped out than those who achieved
permanent status in June.
Barofsky and Elizabeth Warren, who chairs the bailout
Congressional Oversight Panel, told lawmakers the program was
doing little to provide real housing relief.
Warren, considered a leading candidate to lead the new
Consumer Financial Protection Bureau signed into law by
President Barack Obama on Wednesday, said the program had not
kept up with the deterioration in the housing market.
"It's too small, it's too slow," she said. "The program is
based on the assumption that we will pay the servicers a bribe
to make a deal between the homeowner and the investor who's
still holding the paper and it has not worked well."
U.S. Treasury officials defended their efforts, saying that
monthly payments were permanently reduced for nearly 400,000
homeowners and the program was adapting to changing conditions
by offering forbearance to unemployed people and extra funding
for the hardest-hit markets.
Herbert Allison, Treasury assistant secretary for financial
stability, said the mortgage modification program could not
adopt specific targets for individual components because it
needed to stay flexible.
"This is a dynamic crisis. It started out as a subprime
crisis, it's evolved into an unemployment-driven and underwater
mortgage crisis, and we've had to continually adjust. For us to
say we're going to have a finite number of people in each one
of these programs could constrain us from the type of
flexibility we need to deal with a dynamic problem."
Barofsky, in a new quarterly oversight report, again
pressed his recommendation that the Treasury consider making
mortgage principal reduction mandatory instead of voluntary,
saying this would do more to aid "underwater" homeowners, who
owe more than their homes are worth.
The Treasury has declined to adopt the recommendation,
citing the prospect that it would prompt mortgage servicing
firms to opt out of the program. It also has expressed concerns
about fairness, as reductions in principal would help not only
"responsible" homeowners hit by value declines, but also those
who overleveraged their properties in refinancings.
$3.7 TRILLION TAB
Barofsky's report also estimated that total U.S. taxpayer
support for the financial system grew by $700 billion in the
past year to around $3.7 trillion -- including TARP, Federal
Reserve programs, asset guarantees and federal bank deposit
insurance, among other commitments.
The increase was largely due to the government's pledges to
supply capital to Fannie Mae and Freddie Mac, to buy their
securities and guarantee mortgages to prop up housing, it
Increased guarantees for loans backed by the Federal
Housing Administration, the Government National Mortgage
Association and the Veterans Administration increased the
government's commitments by $512.4 billion alone in the year to
June 30, according to the report.
Barofsky said the overall increase was "the equivalent of a
fully deployed TARP program" -- a reference to TARP's original
$700 billion price tag.
The increased government commitments more than offset a
decline of about $300 billion in the U.S. Treasury's TARP
commitments in the past year as programs have closed and banks
have repaid taxpayer funds.
The new financial reform law limits the Treasury's TARP
authority to $475 billion and prevents it from taking on any
new obligations. The Treasury said on Wednesday it is shrinking
several programs and dropping a TARP small business lending
program allocated at $30 billion.
(For a factbox on the reductions, see [ID:nN21158731])
A new overall cost estimate for TARP after repayments is
expected to be issued on Friday, when the White House updates
its budget forecasts. Allison said the current estimate of $105
billion was "conservative."
(Editing by Dan Grebler)