TARP Program a Failure According to Special Inspector General

TARP watchdog blasts White House’s foreclosure programs

 In a quarterly report released to Congress, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), said the program has been a success financially, but that programs “designed to help Main Street rather than Wall Street” have been failures.  Barofsky focused part of his criticism on the Home Affordable Modification Program, known as HAMP, which is intended to help eligible homeowners avoid foreclosure by facilitating mortgage modifications with loan servicers.  As of Dec. 31, there have been just over 500,000 ongoing permanent modifications under HAMP, with about 238,000 of those funded by and attributable to TARP — figures Barofsky called “anemic.”  The report also blasts the Treasury Department, which oversees the program, for refusing to adopt “meaningful goals and benchmarks” for HAMP.

 In addition, Barofsky says the billions of dollars that were used to bailout faltering financial institutions, such as Citibank, AIG and Bank of America, during the crisis set a dangerous precedent. “By effectively guaranteeing these institutions against failure, they encouraged future high-risk behavior by insulating the risk-takers who had profited so greatly in the run-up to the crisis from the consequences of failure,” he wrote. “In many ways, TARP has thus helped mix the same toxic cocktail of implicit guarantees and distorted incentives that led to disastrous consequences.”  Barofsky also faults the Dodd-Frank bill, a law passed last year that enacted sweeping reforms of the nation’s financial regulatory framework, for not being forceful enough to deal with too-big-to-fail banks.

 ”Unless and until institutions currently viewed as ‘too big to fail’ are either broken up so that they are no longer perceived to be a threat to the financial system, or a structure is put in place that gives adequate assurance to the market that they will be left to suffer the full consequences of their own recklessness, the prospect of more bailouts will continue to fuel more bad behavior with potentially disastrous results,” he wrote.

The four week moving average is down 3.7 percent for the seasonally adjusted Purchase Index, while this average is down 0.1 percent for the Refinance Index.  The refinance share of mortgage activity decreased to 70.3 percent of total applications from 73.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.2 percent from 5.0 percent of total applications from the previous week.

According to a CNNMoney survey of 27 leading economists, personal consumption, a measure of consumer spending, jumped by 4% in the fourth quarter. If that forecast is correct, it will be the strongest increase in that key reading since 2006.  The bullish outlook for consumer spending is the reason why economists now forecast that Friday’s reading on gross domestic product, the government’s main measure of the economy’s strength, grew at a 3.5% annual rate in the fourth quarter — a significant increase from a 2.6% rise in the previous quarter.  The spending improvements are broad-based, including a strong holiday shopping season and a rebound in demand for new cars.

The next robo-signing crisis?

“It’s the next big shoe to drop in the robo-signing foreclosure scandal. Call it part two.  We already know some banks halted foreclosure sales nationwide in October when it was discovered that servicers took short cuts, so-called ‘robo-signing’ in the foreclosure sale process in judicial foreclosure states – about half the country.  Now it appears they may have done the same thing in a different part of the process, the Notice of Default, which takes place in the other half – i.e. the non-judicial states - this happens before the foreclosure sale.  (Judicial foreclosures are those that are processed through the courts whereas non-judicial are processed without court intervention.)

 A Notice of Default is the notice sent out in non-judicial foreclosure states that alerts the borrower that the official foreclosure process has begun. It is also filed with the county recorders office and allows the notice of foreclosure sale to be published. What’s so important is that this is the process in California, Nevada and Arizona (AZ is both judicial and non-judicial), which have three of the top four foreclosure rates.  Last week an article from www.foreclosureself-defense.com titled, ‘New Point of Foreclosure Contention: Default Notice’ circulated widely among the folks who follow the mortgage mess. It talked about how several lawsuits are now being filed contending that the Notice of Default process was flawed and the foreclosure therefore invalid.

 As this article was circulating, a source pointed me to the fact that Notices of Default had dropped off dramatically since October, especially in California. In fact, Foreclosure Radar shows it quite clearly. Foreclosure Radar’s Sean O’Toole wasn’t ready to say the banks had cut off Notices of Defaults but did say, ‘given the issues raised, we certainly wouldn’t be surprised to see a slow down of foreclosure activity in non-judicial states.’

Bank of America, and spokesman Dan Frahm said:  ‘As part of our voluntary, comprehensive review of the modification and foreclosure process we launched in October of 2010, we did conduct a review of the Notice of Default process. As a result, we stopped the NOD process in the non judicial states while we completed that review and, later, implemented and tested the resulting process improvements. We announced in December our foreclosure restart – starting with vacant and non-owner occupied properties – and ramp up of that volume continues, as does the related NODs.’

 They then said they had ‘improved’ the process, and we would see volume increase soon, if not already. ‘Based on the Foreclosure Self-Defense story you referenced and the notion this is the potential next issue, I feel good knowing we addressed NOD as part of our rigorous voluntary review and testing process,’ added Frahm.  JP Morgan Chase is still getting back to us. Wells Fargo tells us they did not stop NOD‘s.  What does it mean going forward?  ‘This prolonged curtailment in NOD volume will lead to fewer foreclosure completions in 2011 than forecast,’ notes mortgage consultant Mark Hanson. ‘After four months of total uncertainty over the entire foreclosure process nationwide, it will have consequences on the mortgage, housing, and related sectors.’  Hanson says distressed loan pipelines are ‘poised to get out of control beginning in Q1.’”