The amount of taxpayer dollars directed at the Troubled Asset Relief Program (TARP) continues to grow but with little economic progress being made, particularly in the housing market.
"Indeed, the current outstanding balance of overall Federal support for the nation's financial system...has actually increased more than 23% over the past year...the equivalent of a fully deployed TARP program - largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases," said Barofsky.
A large portion of those funds was directed at Fannie Mae and Freddie Mac to guarantee mortgages to prevent the wave of foreclosures pouring over the housing market, but it ultimately had little effect.
Increased guarantees for loans backed by the Federal Housing Administration (FHA), the Government National Mortgage Association and the Veterans administration, increased spending increased by $512.4 billion in the past year.
However, Barofsky criticized the Obama administration's housing programs, especially the Home Affordable Modification Program (HAMP), as ineffective when it came to reducing the number of foreclosures. The program could cost as much as $75 billion of TARP funds.
"Treasury's refusal to provide meaningful goals for this important program is a fundamental failure of transparency and accountability that makes it far more difficult for the American people and their representatives in Congress to assess whether the program's benefits are worth its very substantial cost," Barofsky wrote.
HAMP pays mortgage-servicing companies a $1,000 fee to rewrite loan terms to reduce a borrower's monthly payments, and pays $1,000 a year up to three years as long as the borrower remains in the program.
Barofsky has been recommending that the Treasury make the voluntary mortgage program mandatory, limiting the number of homeowners who walk away from their mortgages.
The Treasury claims that making the program mandatory would deter mortgage servicing firms from participating and would be unfair to some homeowners who did not overleverage their properties by refinancing.
The Treasury said it would meet its goal of keeping 3 million to 4 million homeowners in their homes by the end of 2012, but Barofsky does not see that as realistic.
"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."
HAMP has many critics who say it's flawed and has done little to help reduce foreclosures. Some 1.3 million homeowners have sought HAMP's assistance, but over 40% have dropped out of the program, according to data released this week by the Treasury.
"I feel like a broken record, but HAMP continues to perform very poorly," John Taylor, head of the National Community Reinvestment Coalition, an advocacy group, told CNNMoney. "The permanent modification numbers are simply too low, while foreclosure filings continue above 300,000 for the 16th month in a row."
TARP, which is set to expire Oct. 3, has reduced its commitments by $300 billion due to bailout repayments and program closures, but that amount was offset by the $700 billion gain in costs.
Barofsky recommended - as he has in previous reports - that the U.S. Treasury Department better document its negotiations with companies that received large bailouts and keep a close eye on whether or not those institutions are complying with the established financial aid conditions.
The report sparked other bailout critics to lash out against TARP.
"The fact that the Obama administration is treating TARP like its own personal slush-fund is beyond egregious and a complete betrayal of what the American people were told would be then when their tax dollars were used to bailout Wall Street," U.S. Rep. Darrell Issa, R-CA, said in a statement.
On a positive note, Barofsky praised the Treasury's efforts to make deals at or above market value when selling back stock warrants and preferred shares it received from bailed out firms. The government has made $7 billion from sales and $16 billion from interest payments and other TARP income so far.
News and Related Story Links:
- Money Morning:
Cost to Fix Fannie Mae and Freddie Mac May Reach $1 Trillion
- Office of the Special Inspector General to the Troubled Asset Relief Program:
Quarterly Report to Congress July 21, 2010
Financial system support up to $700 billion in past year: watchdog
U.S. bailout watchdogs slam Obama housing programs
Many don't qualify for Obama's foreclosure prevention
Bailout cop: Economy still on government life support
- Money Morning:
Housing Market Still in Shambles as Obama's Loan Modification Program Falls Flat