March 17 (Bloomberg) — The Obama administration is inflating the success of programs that prevent foreclosures by skewing data on loan modifications and revising the goals, according to House Republicans.
Reports on the Home Affordable Modification Program are “glossing over disappointing results” by counting temporary changes toward the goal of permanent relief for as many as 4 million borrowers, said a letter sent yesterday to Treasury Secretary Timothy F. Geithner by Republican representatives Darrell Issa and Jim Jordan.
HAMP was designed last year to curb record foreclosures after housing markets began to collapse in 2007. About 2.82 million U.S. homeowners lost their properties to foreclosure in 2009 and 4.5 million filings are expected in 2010, according to RealtyTrac Inc., the Irvine, California-based seller of default data.
Treasury spokeswoman Meg Reilly said the goal has “always been for offers extended to borrowers,” rather than the number completed. “This has been misreported for the past year and, while we have done our best to clarify for the public, the goal post has never moved,” Reilly said in an e-mail.
Lynn Turner, the former Securities and Exchange Commission chief accountant, said Treasury’s approach “seems to have taken a page out of the accounting manuals at Enron and Lehman,” referring to accounting disputes that accompanied two of history’s biggest financial collapses. “It has become the culture of Washington and Wall Street, and they reinforce one another.”
Turner, now a managing director at forensic accounting firm LECG LLC, is a Democrat who served under former President Bill Clinton.
Trial Plans
Issa, from California, is the ranking Republican on the House Oversight and Government Reform Committee and has helped drive investigations of the Treasury’s role in bailouts for Bank of America Corp. and American International Group Inc. Ohio’s Jordan is the ranking Republican on the panel’s Domestic Policy Subcommittee.
Lenders led by Bank of America, based in Charlotte, North Carolina, and New York-based JPMorgan Chase & Co. successfully converted 168,708 trial plans into permanent loan revisions as of Feb. 28, the Treasury said in a March 12 HAMP report. More than 835,000 additional borrowers were in trial repayment plans, Treasury said.
“Rather than acknowledge the program’s failure, Treasury is trying to confuse the American people by counting HAMP’s higher number of temporary modifications — fewer than one-third of which are successfully converting to permanent ones — toward the goal,” the letter reads.
Definition of Success
Treasury’s Phyllis Caldwell, chief of the Homeownership Preservation Office, told lawmakers last month that the program was designed to give homeowners the “opportunity for a mortgage modification, not a permanent modification.”
Trial modifications shouldn’t be the standard, said Moshe Orenbuch, a Credit Suisse Group AG bank analyst in New York.
“Success of the program should be measured by the amount of borrowers who get permanent loan relief and avoid foreclosure,” Orenbuch said.
Wells Fargo & Co., the nation’s top mortgage lender, today became the second bank to agree to also modify home-equity loans as part of the program. The option will be available to borrowers who successfully complete a modification on their first mortgage through HAMP, according to a statement from the San Francisco-based company.
By Dawn Kopecki
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