TARP report finds fault with loan modification program

A report released by the Treasury Department’s Troubled Asset Relief Program reveals that its mortgage modification program appears to have been helping servicers more than homeowners, the New York Times reported.

The report, by Christy Romero, the special inspector for TARP, reveals that although more than a third of homeowners who received loan modifications under TARP’s mortgage modification program have since stopped paying, banks and other mortgage servicers kept the money they received for modifying those loans.

All told, servicers accepted $815 million in incentives for helping homeowners who have since redefaulted on their home loans.

Under the loan modification program, called the Home Affordable Modification Program, many of the homeowners received little relief, with a majority benefiting from a reduction of less than 10 percent on their monthly payments. The Treasury has spent only about a fifth of the $38.5 billion allocated to help homeowners under TARP.

“Treasury took extraordinary action to bail out the banks,” Romero said. “They still have to do the same for homeowners.”

Still, some Treasury officials have defended the program, arguing that under its rules, loan modifications have been more beneficial to homeowners than private loan modifications. [NYT] – James Comtois