TARP Bailout Money Fails To Reach Neediest Homeowners After Two Years: Report

A federal housing program funded with taxpayer money left over from the government's bailout of the banks and auto companies is failing to deliver on its promised relief to struggling homeowners.

The Hardest Hit Fund, a $7.6 billion initiative established by the federal government in February 2010 to help families in states most crippled by the collapsed housing market, has distributed just 3 percent of its money -- or $217.4 million -- to help homeowners, according to a report released Thursday by the Office of the Special Inspector General for the Troubled Asset Relief Fund, or SIGTARP.

"Look at the TARP money that goes out to the banks," said Special Inspector General Christy Romero in an interview with The Huffington Post. "That goes out in a matter of days. This has been two years and only 3 percent of these funds have trickled out to homeowners."

The Hardest Hit Fund has helped just slightly more than 30,000 homeowners, or 7 percent of the roughly 480,000 homeowners targeted for assistance by the end of 2017 when the program expires, according to the report. The program is funded by TARP, the 2008 legislation that has provided a $600 billion to bail out various banks and other companies in the wake of the nation's financial crisis.

"The Hardest Hit Fund is really struggling to get off the ground and it's a real concern about whether this money can get out to these homeowners," Romero said.

The 76-page report reads like the autopsy of a dead housing program, placing the blame for the program's paltry performance squarely on the Treasury Department, the government agency responsible for TARP and, in turn, the Hardest Hit program.

According to the report, Treasury initially dragged its heels in getting the largest mortgage servicers to participate in the initiative, instead relying on the individual states to broker arrangements with the servicers. Some of the states lacked the necessary clout to secure servicer participation, thus limiting the program's ability to reach needy homeowners, concluded the report.

"These states don't have the bargaining power that Treasury has with these large servicers," Romero said. "Treasury is already working with these same servicers, having similar conversations with them for other housing programs, so Treasury should be using its influence to really get these servicers on board."

The Treasury Department was similarly slow in securing support from Fannie Mae and Freddie Mac, the government-owned mortgage giants that collectively control nearly half of all outstanding loans, further curtailing the initiative's reach. The report also blames the Treasury Department for giving states too little time to roll out the program and for failing to establish clear, specific goals that would let the government and the public measure the program's success.

"Treasury actively and consistently engaged with servicers and [Fannie and Freddie] from the earliest stages of the program, encouraging support and addressing impediments to participation," wrote Tim Massad, the department's assistant secretary for financial stability, in a letter responding to the report's findings.

Massad also called the report "disappointing" for its focus on the program's early months instead of more recent progress asserting that last quarter the number of homeowners helped by the fund grew 60 percent and the amount of money delivered to homeowners increased 93 percent.

"This report misses the mark by not acknowledging the hard work of participating states and the innovative ways they are preventing foreclosures in their local communities," wrote Massad in an email to The Huffington Post. "The Hardest Hit Fund is helping states address some of the most difficult problems caused by the housing crisis in ways that suit local conditions and have already kept tens of thousands of families in their homes."

While the Hardest Hit Fund's performance is weak, it is not unique. Many of the federal government's housing assistance programs have underdelivered, most notably the flagship Making Home Affordable loan modification program. Announced in the spring of 2009, the program was designed to help 3 million to 4 million homeowners avoid foreclosure by changing the terms of loans and lowering monthly payments. Nearly three years later, fewer than 1 million homeowners have received a permanent loan modification.

The Home Affordable Refinance Program was also introduced in 2009 with the intent of helping 4 million to 5 million homeowners refinance their mortgages, taking advantage of the nation's historically low interest rates. As of this past January, fewer than 1.1 million homeowners have refinanced through the program, which is reserved for borrowers whose loans are backed by Fannie Mae or Freddie Mac.

Thursday's report concludes with suggestions for how the Treasury Department can strengthen the Hardest Hit Fund's effectiveness, including establishing measurable program goals, making performance data available online for the public and developing a plan to win "industry support" for the initiative.

"If Treasury doesn't make a change, the Hardest Hit Fund risks becoming another government housing program with limited impact," Romero said. "It's time to change the status quo."