TROUBLED ASSET 

RELIEF PROGRAM

More Efforts Needed 

on Fair Lending 

Controls and Access 

for Non-English 

Speakers in Housing 

Programs

Report to Congressional Committees

February 2014

GAO-14-117

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-117, a report to 

congressional committees

February 2014

TROUBLED ASSET RELIEF PROGRAM

More Efforts Needed on Fair Lending Controls and 

Access for Non-English Speakers in Housing 

Programs

Why GAO Did This Study

Treasury introduced MHA in February 

2009 and indicated that up to $50 

billion would be used to help 3 to 4 

million struggling homeowners avoid 

potential foreclosure. Since then, 

questions have been raised about 

participation rates and the overall 

success of the program. The 

Emergency Economic Stabilization Act 

of 2008 requires GAO to report every 

60 days on the Troubled Asset Relief 

Program (TARP) activities. 

This 60-day report examines (1) the

status of MHA and steps Treasury has 

taken to increase program 

participation, (2) Treasury’s oversight 

of the MHA-related fair lending internal 

controls of servicers, and (3) 

Treasury’s and MHA servicers’ policies 

and practices for ensuring that LEP 

borrowers have equal access to the 

program. For this work, GAO reviewed 

program documentation, analyzed 

HAMP loan-level data, and interviewed 

officials from Treasury, fair lending 

supervisory institutions, and the five 

largest MHA servicers.

What GAO Recommends

Treasury should (1) assess the extent 

to which servicers have established 

internal control programs to monitor 

compliance with fair lending laws, (2) 

issue guidance to servicers on working 

effectively with LEP borrowers and (3) 

monitor servicers’ compliance with the 

guidance. Treasury noted that it was 

considering GAO’s recommendations 

and agreed that it should continue to 

strengthen its program. Treasury also 

provided technical comments that were 

incorporated into the report as 

appropriate.

What GAO Found

Participation rates in the Home Affordable Modification Program (HAMP), a key 

component of the Making Home Affordable program (MHA), peaked in early 

2010, generally declined during 2011, and remained relatively steady from 2012 

through November 2013. As of November 2013, about 1.3 million borrowers had 

entered into a HAMP permanent modification. Treasury has made several efforts 

to increase participation, such as extending the program deadline through 

December 2015, expanding program eligibility requirements, and initiating the 

MHA Outreach and Borrower Intake Project. This project provides funding to 

counseling agencies to help borrowers complete and submit MHA application 

packages. The project was scheduled to end in December 2013 but was recently 

extended through September 2014.

Treasury requires MHA servicers to develop internal control programs that 

monitor compliance with fair lending laws (the Fair Housing Act and Equal Credit 

Opportunity Act) but has not assessed the extent to which servicers are meeting 

this requirement. Treasury noted that it shares HAMP loan-level data with the 

federal agencies responsible for fair lending enforcement. GAO’s analysis of 

HAMP loan-level data for four large MHA servicers identified some statistically 

significant differences in the rate of denials and cancellations of trial 

modifications and in the potential for redefault between populations protected by 

fair lending laws and other populations. Such analysis by itself cannot account for 

all factors that could explain these differences. Reviewing the fair lending 

internal controls of MHA servicers could give Treasury additional assurance that 

servicers are complying with fair lending laws.

Despite an Executive Order issued in 2000 and a 2011 Attorney General’s 

memorandum regarding improving access to federal programs for limited English 

proficiency (LEP) persons, Treasury only recently developed LEP-related written 

guidelines and procedures for the MHA programs. Treasury has taken measures 

to reach out to these borrowers and requires servicers to have a policy for 

“effective relationship management” with LEP borrowers. However, Treasury has 

not provided any clarifying guidance to servicers on what such a policy should 

contain or assessed servicer compliance with this requirement. Housing 

counselors have noted that LEP borrowers continue to encounter languagerelated barriers in obtaining access to MHA program benefits. Without a 

comprehensive strategy that includes guidance for servicers on engaging with 

LEP borrowers and monitoring of servicers, Treasury cannot ensure that all 

potential MHA participants have equal access to program benefits. Because the 

MHA program provides direct outlays of taxpayer dollars, it is important that 

Treasury take appropriate steps to ensure that all eligible borrowers, including 

those whose primary language is not English, have access to MHA program 

benefits.

View GAO-14-117. For more information, 

contact Mathew J. Scirè at (202) 512-8678 or 

sciremj@gao.gov.
Page i GAO-14-117 Troubled Asset Relief Program

Letter 1

Background 4

HAMP Participation and Expenditures Have Remained below 

Expectations 11

Treasury Has Not Assessed Servicers’ Internal Controls or 

Borrower Data Related to Fair Lending 18

Treasury Has Provided Servicers with Limited Guidance and 

Oversight on Interacting with Borrowers with Limited English 

Proficiency 25

Conclusions 29

Recommendations for Executive Action 30

Agency Comments and Our Evaluation 31

Appendix I Objectives, Scope, and Methodology 36

Appendix II Description of GAO’s Econometric Analysis of HAMP Outcomes for 

Fair Lending Groups 39

Appendix III Comments from the Department of the Treasury 61

Appendix IV GAO Contact and Staff Acknowledgments 63

Selected Bibliography 64

Tables

Table 1: MHA Outreach and Borrower Intake Project Package 

Allocation to Housing Counseling Agencies 16

Table 2: HAMP Data Used in the Analysis by Phase of the HAMP 

Process, April 2009 to April 17, 2013 43

Table 3: Denial Rate and Percent Difference in Denial Rates 

between Selected Populations and their Comparison 

Populations for HAMP Applications Denied Due to a DTI 

Less Than 31 Percent 52

Contents
Page ii GAO-14-117 Troubled Asset Relief Program

Table 4: Denial Rate and Percent Difference in Denial Rates 

between Selected Populations and their Comparison 

Populations for HAMP Applications Denied Due to an 

Incomplete Request 54

Table 5: Redefault of HAMP Permanent Modification and Percent 

Difference in Redefault Rate between Selected 

Populations and Their Comparison Populations 57

Figure

Figure 1: Monthly HAMP and Combined Tier 1 and Tier 2 Activity 

Levels through November 2013 12
Page iii GAO-14-117 Troubled Asset Relief Program

Abbreviations

2MP Second Lien Modification Program

AIAN American Indian or Alaska Native

CBO Congressional Budget Office

CFPB Bureau of Consumer Financial Protection

DOJ Department of Justice

DTI debt-to-income ratio

ECOA Equal Credit Opportunity Act

EESA Emergency Economic Stabilization Act of 2008

the enterprises Fannie Mae and Freddie Mac

FDIC Federal Deposit Insurance Corporation

FFETF Financial Fraud Enforcement Task Force

FHA Federal Housing Administration

FICO Fair Isaac Corporation

FTC Federal Trade Commission

HAFA Home Affordable Foreclosure Alternatives

HAMP Home Affordable Modification Program

HUD Department of Housing and Urban Development

IR/2 Investor Reporting/2

LEP limited English proficiency

LTV loan-to-value

NFMC National Foreclosure and Mitigation Counseling

MHA Making Home Affordable 

MHA-C Making Home Affordable Compliance

NHPI Native Hawaiian or Other Pacific Islander

NMS National Mortgage Settlement

NPV net present value

OCC Office of the Comptroller of the Currency

OFS Office of Financial Stability

PRA Principal Reduction Alternative

RHS Rural Housing Service

SIGTARP Special Inspector General for the Troubled Asset 

Relief Program

SPA Servicer Participation Agreement

TARP Troubled Asset Relief Program

USDA Department of Agriculture

VA Veterans Affairs
Page iv GAO-14-117 Troubled Asset Relief Program

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Page 1 GAO-14-117 Troubled Asset Relief Program

441 G St. N.W.

Washington, DC 20548

February 6, 2014

Congressional Committees

The Making Home Affordable (MHA) program is one of the last active 

programs under the initially authorized $700 billion Troubled Asset Relief 

Program (TARP) created by the Emergency Economic Stabilization Act of 

2008 (EESA).1 Among other things, EESA was intended to preserve 

homeownership and protect home values. The U.S. Department of the 

Treasury (Treasury) introduced MHA in February 2009, providing up to 

$50 billion to help as many as 4 million struggling homeowners avoid 

potential foreclosure. Treasury has subsequently reduced the amount 

obligated for housing programs under TARP to $38.5 billion, of which 

$29.9 billion is allocated to MHA programs. MHA’s key component is the 

Home Affordable Modification Program (HAMP), which provides servicers

and mortgage holders/investors with incentive payments for modifying 

first-lien mortgages. These modifications are intended to prevent 

foreclosures by reducing homeowners’ monthly mortgage payments to 

affordable levels. Treasury has implemented additional programs that use 

TARP funds, including a program aimed at helping homeowners in areas 

hit hardest by the housing crisis and another to help underwater 

borrowers who owe more on their mortgages than their homes are worth.2

Entry into the MHA programs was originally scheduled to end in 

December 2012, but Treasury has extended the deadline twice, most 

recently until December 31, 2015.3

 1

Pub. L. No. 110-343, 122 Stat. 3765 (2008) (codified at 12 U.S.C. §§ 5201-5261). The 

Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 

Stat. 1376 (2010): (1) reduced Treasury’s authority to purchase or insure troubled assets 

to a maximum of $475 billion and (2) prohibited Treasury, under EESA, from incurring any 

additional obligations for a program or initiative unless already introduced prior to June 25, 

2010. § 1302.

Only loans originated on or before 

2

The Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets ($7.6 

billion) aims to help borrowers in the areas most affected by the housing crisis, and the 

Department of Housing and Urban Development’s Federal Housing Administration (FHA) 

Refinance of Borrowers in Negative Equity Positions (FHA Short Refinance) aims to help 

underwater borrowers. In 2013, Treasury reduced the amount obligated to the FHA Short 

Refinance program from $8.1 billion to $1.0 billion due, in part, to participation levels being 

lower than originally projected.

3

On March 9, 2012, Treasury announced the extension of the MHA program for 1 year, 

until December 31, 2013. On June 13, 2013, Treasury announced the extension of the 

MHA program for 2 years, until December 31, 2015.
Page 2 GAO-14-117 Troubled Asset Relief Program

January 1, 2009, and that meet other requirements, are eligible for 

assistance under the MHA program.

Since its implementation, however, HAMP’s participation rates have 

remained low relative to initial estimates of the number of homeowners 

the program was expected to assist. Treasury has made several efforts to 

increase participation rates, such as extending the deadline for 

participation in the MHA programs and working with a network of 

counseling agencies to increase borrower awareness of the programs. 

Some advocates have recently expressed concern about the extent to 

which groups that have been traditionally underserved by the mortgage 

markets have the same access to MHA programs as other borrowers. 

Specifically, these advocates point to racial and ethnic minorities and 

individuals with limited English language skills.

In four prior reports, we looked at Treasury’s design and implementation 

of HAMP and other MHA programs and made several recommendations 

to improve Treasury’s oversight of the programs and the programs’

effectiveness.4

 4

GAO is required to report at least every 60 days on findings resulting from the oversight 

of, among other things, TARP’s performance in meeting the purposes of the act, the 

financial condition and internal controls of TARP, the characteristics of both asset 

purchases and the disposition of assets acquired, the efficiency of TARP’s operations in 

using appropriated funds, and TARP’s compliance with applicable laws and regulations. 

Pub. L. No. 110-343, § 116(a), 122 Stat. 3765, 3783-85 (codified at 12 U.S.C. § 5226(a)). 

Under this statutory mandate, we have reported on Treasury’s use of TARP funds to 

preserve homeownership and protect home values. See GAO, Troubled Asset Relief 

Program: Treasury Actions Needed to Make the Home Affordable Modification Program 

More Transparent and Accountable, 

This 60-day report examines (1) the status of MHA and 

steps Treasury is taking to increase participation in the program, (2) 

Treasury’s oversight of the MHA-related fair lending internal controls of 

participating servicers, and (3) Treasury’s and MHA servicers’ policies 

and practices for ensuring that borrowers with limited English proficiency 

(LEP) have equal access to the program.

GAO-09-837 (Washington, D.C.: July 23, 2009); 

Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably Implement 

Foreclosure Mitigation Programs, GAO-10-634 (Washington, D.C.: June 24, 2010); 

Troubled Asset Relief Program: Treasury Continues to Face Implementation Challenges 

and Data Weaknesses in Its Making Home Affordable Program, GAO-11-288

(Washington, D.C.: Mar. 17, 2011); and Troubled Asset Relief Program: Further Actions 

Needed to Enhance Assessments and Transparency of Housing Programs, GAO-12-783

(Washington, D.C.: July 19, 2012).
Page 3 GAO-14-117 Troubled Asset Relief Program

To address these objectives, we reviewed MHA program documentation 

that Treasury issued, including supplemental directives for the recent 

MHA program changes, and interviewed officials from Treasury and 

NeighborWorks America (NeighborWorks).5

We conducted this performance audit from February 2013 through 

February 2014 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on the audit objectives.

We spoke with the 5 largest 

MHA servicers, which, as of October 2013, collectively represented about 

77 percent of the total trial HAMP loan modifications approved. We also 

spoke with various mortgage industry participants, including associations 

representing housing counselors and legal services attorneys. To 

understand Treasury’s oversight of the MHA-related fair lending controls 

of servicers, we spoke with Treasury officials and reviewed MHA program 

policies. We also spoke with the 5 largest MHA servicers mentioned 

above and those federal agencies authorized to examine servicers for 

compliance with federal fair lending laws. We analyzed loan-level data 

from Treasury’s HAMP database that included information reported by 

servicers on borrowers evaluated for HAMP participation through April 17, 

2013. This analysis allowed us to identify the outcomes of borrowers at 

four large servicers at various stages of the HAMP process and to 

compare these outcomes across borrower groups, including populations 

protected by certain fair lending requirements. To understand how 

Treasury and MHA servicers work to ensure access to MHA for LEP 

borrowers, we obtained information from Treasury officials and spoke with 

the five servicers we contacted about their policies and practices. We also 

examined Treasury’s draft LEP plan and MHA guidelines. For additional 

information on our scope and methodology, see appendixes I and II.

 5

NeighborWorks America was established under Title VI of the Housing and Community 

Development Act of 1978, Pub. L. No. 95-557, § 603, 92 Stat. 2080, 2115 (codified at 42 

U.S.C. § 8102), as a congressionally chartered nonprofit organization dedicated to 

improving distressed communities. Treasury is working with NeighborWorks to leverage 

the nonprofit’s network of local housing counseling agencies as part of a project intended 

to increase awareness of MHA and assist potentially eligible homeowners with 

successfully applying for assistance under MHA.
Page 4 GAO-14-117 Troubled Asset Relief Program

Treasury’s Office of Homeownership Preservation within the Office of 

Financial Stability (OFS), is responsible for overseeing the TARP-funded 

programs that are intended to help prevent avoidable foreclosures and 

preserve homeownership. MHA is the primary TARP initiative for 

addressing these issues. Treasury allocated $29.9 billion in TARP funds 

to MHA, which consists of several programs designed to help struggling 

homeowners prevent avoidable foreclosures.6

• HAMP first-lien modifications. These loan modifications are available 

to qualified borrowers who took out loans on or before January 1, 

2009. Only single-family properties (one to four units) with mortgages 

no greater than $729,750 for a one-unit property are eligible. HAMP 

uses a standardized net present value (NPV) model to compare 

expected cash flows from a modified loan to the same loan with no 

modification, using certain assumptions.7 Treasury also shares some 

of the costs of modifying mortgages with mortgage holders/investors 

and provides incentives of up to $1,600 to servicers for completing 

modifications.8

The original HAMP first-lien modification structure, or HAMP Tier 1, is 

generally available to qualified borrowers who occupy their properties 

The Home Price Decline Protection Incentive provides 

investors with additional incentives to modify loans on properties 

located in areas where home prices have recently declined and where 

investors are concerned that price declines may persist.

 6

Only financial institutions that signed a Commitment to Purchase Financial Instrument 

and Servicer Participation Agreement (SPA) on or before October 3, 2010, are eligible to 

receive TARP financial incentives under the MHA program. Treasury pays the incentives 

for HAMP modifications for loans not owned or guaranteed by the government-sponsored 

enterprises Fannie Mae or Freddie Mac (the enterprises). The enterprises bear the cost of 

HAMP modifications for loans they own or guarantee. 

7

The NPV model compares the expected cash flow from the loan if a modification were to 

be made using program guidelines against the expected cash flow from the loan if no 

modification were to be made. If the expected cash flow with a modification is “positive”

(i.e., more than the estimated cash flow of the unmodified loan), the loan servicer is 

required to make the loan modification. That is, if the NPV of the expected cash flow with 

a modification is greater than the NPV of the expected cash flow without a modification, 

the loan servicer is required to modify the loan. 

8

Additional incentive payments are available to servicers, borrowers, and mortgage 

holders/investors that meet certain conditions. 

Background

Making Home 

Affordable Programs
Page 5 GAO-14-117 Troubled Asset Relief Program

as their primary residence and whose first-lien mortgage payment is 

more than 31 percent of their monthly gross income, calculated using 

the front-end debt-to-income (DTI) ratio.9

• The Second Lien Modification Program (2MP). Under 2MP, when a 

borrower’s first lien is modified under HAMP and the servicer of the 

second lien is a 2MP participant, that servicer must offer a 

modification and/or full or partial extinguishment of the second lien. A 

servicer need not service the related first lien in order to participate in 

2MP. Treasury provides incentive payments to second-lien mortgage 

holders in the form of a percentage of each dollar of principal 

reduction on the second lien. Treasury has doubled the incentive 

payments offered to second-lien mortgage holders for 2MP 

permanent modifications that include principal reduction and have an 

effective date on or after June 1, 2012.

In June 2012, Treasury 

made a second type of first-lien loan modification available under 

HAMP. HAMP Tier 2 is available for either owner-occupied properties 

or rental properties, and borrowers’ monthly mortgage payments prior 

to modification may be less than 31 percent DTI. Mortgages secured 

by owner-occupied properties must be in imminent default or be 

delinquent by two or more payments to be considered for either 

HAMP Tier 1 or HAMP Tier 2. For mortgages secured by rental 

properties, only those that are two or more payments delinquent are 

eligible for HAMP Tier 2. Under both HAMP Tier 1 and Tier 2, 

borrowers must demonstrate their ability to pay the modified amount 

by successfully completing a trial period of at least 3 months (or 

longer if necessary) before a loan is permanently modified and any 

government payments are made.

• Principal Reduction Alternative (PRA Program). In October 2010, PRA 

took effect as a component of HAMP to give servicers more flexibility 

in offering relief to borrowers whose homes were worth significantly 

less than their mortgage balance. Under PRA, Treasury provides 

mortgage holders/investors with incentive payments in the form of a 

percentage of each dollar of principal reduction. Treasury has tripled 

the PRA incentive amounts offered to mortgage holders/investors for 

permanent modifications with trial periods effective on or after March 

1, 2012. Servicers of nonenterprise loans must evaluate the benefit of 

 9

With respect to the borrower’s first-lien mortgage, the front-end, DTI ratio under HAMP is 

the percentage of a borrower’s gross monthly income required to pay the borrower’s 

monthly housing expense (mortgage principal, interest, taxes, insurance, and, if 

applicable, condominium or cooperative fees or homeowners association dues).
Page 6 GAO-14-117 Troubled Asset Relief Program

principal reduction for mortgages with a loan-to-value (LTV) ratio that 

is greater than 115 percent when evaluating a homeowner for a 

HAMP first-lien modification.10

• Home Affordable Foreclosure Alternatives (HAFA) Program. Under 

this program, servicers offer foreclosure alternatives (short sales and 

deeds-in-lieu) to borrowers who meet the eligibility requirement for 

HAMP and cannot be approved for a HAMP trial modification, do not 

successfully complete a HAMP trial modification, default on a 

modification (miss two or more consecutive payments), or request a 

short sale or deed-in-lieu.

Servicers must adopt and follow PRA 

policies that treat all similarly situated loans in a consistent manner, 

but are not required to offer principal reductions, even when NPV 

calculations show that the expected value of the loan’s cash flows 

would be higher with a principal reduction than without. When 

servicers include principal reductions in modifications under PRA, the 

principal reduction amount is initially treated as non-interest-bearing 

principal forbearance. If the borrower is in good standing on the first, 

second, and third anniversaries of the effective date of the 

modification’s trial period, one-third of the principal reduction amount 

is forgiven on each anniversary.

11

• FHA and the Department of Agriculture’s Rural Housing Service 

(RHS) modification programs. These programs are similar to HAMP 

Tier 1 and cover FHA-insured and RHS-guaranteed first-lien 

mortgage loans. If a modified FHA-insured or RHS-guaranteed 

mortgage loan meets Treasury’s eligibility criteria, the borrower and 

servicer can receive TARP-funded incentive payments from Treasury.

The program provides incentive payments 

to investors, servicers, and borrowers for completing these 

foreclosure alternatives.

• Home Affordable Unemployment Program. This program offers 

assistance to borrowers who are suffering financial hardship due to 

 10An LTV ratio for a mortgage is the ratio of the mortgage amount to the value of the 

home. 

11Under a deed-in-lieu of foreclosure, the homeowner voluntarily conveys all ownership 

interest in the home to the lender as an alternative to foreclosure proceedings. In a short 

sale, a homeowner sells a house rather than going into foreclosure. Proceeds from short 

sales are generally less than the mortgage amount, so the homeowner must have the 

lender’s permission for the sale. Under a HAFA short sale, a lender must forgive the 

shortfall between the loan balance and net sales proceeds and release the lien on the 

subject property. Under HAFA, a deed-in-lieu must satisfy the borrower’s entire mortgage 

obligation in addition to releasing the lien on the subject property.
Page 7 GAO-14-117 Troubled Asset Relief Program

unemployment. Borrowers can receive a 12-month forbearance period 

during which monthly mortgage payments are reduced or suspended. 

Servicers can extend the forbearance period at their discretion if the 

borrower is still unemployed. Borrowers should be considered for a 

HAMP loan modification following reemployment or expiration of the 

forbearance period or a foreclosure alternative, such as the HAFA 

program. No TARP funds are provided to servicers under this 

program.

In 2009, Treasury entered into agreements with Fannie Mae and Freddie 

Mac to act as its financial agents for MHA. Fannie Mae serves as the 

MHA program administrator and is responsible for developing and 

administering program operations, including registering, executing 

participation agreements with, and collecting data from servicers and 

providing ongoing servicer training and support. Freddie Mac serves as 

Treasury’s compliance agent and has designated an independent 

division, Making Home Affordable Compliance (MHA-C), which is 

responsible for assessing servicers’ compliance with program guidelines, 

including conducting onsite and remote servicer loan file reviews and 

audits.

The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act 

(collectively, fair lending laws) prohibit discrimination in making credit 

decisions.12 Specifically, ECOA prohibits creditors from discriminating 

against credit applicants on the basis of race, color, religion, national 

origin, sex, marital status, or age, or because an applicant receives 

income from a public assistance program or has in good faith exercised 

any right under the Consumer Credit Protection Act.13

 12Respectively, Pub. L. No. 90-321, tit. VII, as added Pub. L. No. 93-495, tit. V, 88 Stat. 

1521 (1974) (codified at 15 U.S.C. §§ 1691–1691f) and Pub. L. No. 90-284, tit. VIII, 82 

Stat. 81 (1968) (codified at 42 U.S.C. §§ 3601-3619).

The Fair Housing 

Act prohibits discrimination in connection with real estate-related 

transactions by direct providers of housing, as well as other entities 

whose discriminatory practices, among other things, make housing 

unavailable to persons because of race or color, religion, sex, national 

origin, familial status, or disability. Under one or both of the fair lending 

laws, a lender may not, because of a prohibited basis:

13Pub. L. No. 90-321, 82 Stat. 146 (1968) (codified at 15 U.S.C. §§ 1601-1667e, 1671-

1693r; 18 U.S.C. §§ 891-896).

Fair Lending
Page 8 GAO-14-117 Troubled Asset Relief Program

• fail to provide information or services, or provide different information 

or services regarding any aspect of the lending process, including 

credit availability, application procedures, or lending standards;

• discourage or selectively encourage applicants with respect to 

inquiries about or applications for credit;

• refuse to extend credit or use different standards in determining 

whether to extend credit;

• vary the terms of credit offered, including the amount, interest rate, 

duration, or type of loan;

• use different standards to evaluate collateral;

• treat a borrower differently in servicing a loan or invoking default 

remedies;

• use different standards for pooling or packaging a loan in the 

secondary market or for purchasing loans;

• use different standards in collecting indebtedness; or

• use different standards in modifying existing loans.

Responsibility for federal oversight and enforcement of the fair lending 

laws is shared among eight agencies: the Department of Housing and 

Urban Development (HUD), Department of Justice (DOJ), the Federal 

Trade Commission (FTC), the Bureau of Consumer Financial Protection 

(CFPB), and the four prudential regulators, which supervise depository 

institutions. The four prudential regulators are the Federal Deposit 

Insurance Corporation (FDIC), the Board of Governors of the Federal 

Reserve System (Federal Reserve), the Office of the Comptroller of the 

Currency (OCC), and the National Credit Union Administration. Under the 

Fair Housing Act, HUD investigates all complaints alleging discrimination 

and may initiate investigations and file administrative complaints against 

any entity involved in residential real-estate related transactions, including 

independent mortgage lenders or any other lender, such as depository 

institutions that HUD believes may have violated the act.14

 14Residential real estate-related transactions are defined by the Fair Housing Act as the 

making or purchasing of loans or providing other financial assistance for purchasing, 

constructing, improving, repairing, or maintaining a dwelling; or secured by residential real 

estate. Under the Fair Housing Act, residential real estate-related transactions include the 

selling, brokering, or appraising of residential real property.

DOJ, which 

has enforcement authority for both ECOA and the Fair Housing Act, may 
Page 9 GAO-14-117 Troubled Asset Relief Program

initiate investigations of any creditor—whether a depository or 

nondepository lender—under its own independent authority or based on 

referrals from other agencies. CFPB has supervisory and primary 

enforcement authority under ECOA over mortgage servicers, all insured 

depository institutions with assets greater than $10 billion and their 

affiliates, and certain nondepository lenders (including independent 

mortgage originators).15 The four prudential regulators generally have 

ECOA oversight responsibilities for insured depository institutions with 

assets of $10 billion or less, as well as certain subsidiaries and affiliates 

of those institutions. Each of the prudential regulators has authority to 

examine the institutions it supervises for compliance with the Fair 

Housing Act.16

The prudential regulators conduct examinations of institutions they 

oversee to assess their compliance with fair lending laws and regulations. 

Under ECOA, prudential regulators and CFPB are required to refer 

lenders to DOJ if there is reason to believe that a lender has engaged in a 

pattern or practice of discouraging or denying applications for credit in 

violation of ECOA.17 A prudential regulator that identifies a possible 

ECOA violation, that may also be a Fair Housing Act violation, must notify 

HUD about the potential violation if the regulator does not refer the matter 

to DOJ.18 Under the Fair Housing Act, HUD is required to transmit 

information to DOJ regarding any complaint in which there is reason to 

believe that a pattern or practice of violations has occurred or that a group 

of persons has been denied rights under the Fair Housing Act and that 

the matter raises an issue of general public importance.19

 1512 U.S.C. §§ 5514-15.

16See 12 U.S.C. 1818(b); 15 U.S.C. § 1691e(k).

1715 U.S.C. § 1691e(g). A prudential regulator also may refer an ECOA case to DOJ when 

it has reason to believe that one or more creditors have violated the nondiscrimination 

provisions of ECOA. Id.

1815 U.S.C. § 1691e(k). 

1942 U.S.C. §§ 3610(e)(2), 3614(a).
Page 10 GAO-14-117 Troubled Asset Relief Program

Title VI of the Civil Rights Act of 1964 provides that no person shall be 

subjected to discrimination on the basis of race, color, or national origin 

under any program or activity that receives federal financial assistance.20 

In certain circumstances, failure to ensure that LEP persons can 

effectively participate in and benefit from federally assisted programs and 

activities may violate the prohibition under Title VI against national origin 

discrimination. Executive Order 13166, issued in 2000, addresses the 

application of Title VI’s prohibition on national origin discrimination in 

connection with federally conducted and assisted programs and activities. 

The Executive Order requires that federal agencies examine the services

they provide and develop and implement systems by which individuals 

with limited proficiency in English can access agency programs and 

services.21

With respect to recipients of federal financial assistance, DOJ issued 

guidance which states that recipients should provide LEP individuals with 

“meaningful access” to their programs, services, and activities.

While the Executive Order does not prescribe specific 

approaches to language access services, it does require federal agencies 

to prepare plans (referred to as LEP plans) outlining the steps they will 

take to ensure that eligible LEP persons can meaningfully access their 

programs and activities.

22 Rather 

than express uniform rules of compliance, the guidance suggests that 

agencies assess whether recipients have provided meaningful access 

through consideration of factors such as the number or proportion of LEP 

persons eligible to be served or likely to be encountered by the program 

or recipient; the frequency with which LEP persons come in contact with 

the program; the nature and importance to people’s lives of the program, 

activity, or service provided by the recipient; and the resources available 

to the recipient and the costs of language access. The intent of DOJ’s 

LEP guidance is to ensure meaningful access by LEP persons to critical 

programs, services, and activities.

 2042 U.S.C. § 2000d. 

21Exec. Order No. 13166, 65 Fed. Reg. 50121 (Aug. 16, 2000).

22Enforcement of Title VI of the Civil Rights Act of 1964—National Origin Discrimination 

Against Persons With Limited English Proficiency; Policy Guidance, 65 Fed. Reg. 50123 

(Aug. 16, 2000). 

Limited English 

Language Access
Page 11 GAO-14-117 Troubled Asset Relief Program

HAMP participation levels—number of new permanent modifications 

added on a monthly basis—have made it uncertain whether Treasury will 

disburse the nearly $30 billion it has obligated to help borrowers avoid 

foreclosure. Treasury has taken several steps to increase participation, 

such as extending the program deadline, expanding program eligibility 

criteria through HAMP Tier 2, and providing funding to counseling 

agencies to assist homeowners with completion and submission of 

application packages (intake project). Since the implementation of HAMP 

Tier 2 in June 2012, the number of new HAMP modifications started each 

month has been relatively stable through November 2013. Treasury has 

recently begun to assess the performance of counseling agencies 

participating in the intake project, which has been extended to provide 

funding for packages submitted through September 2014.

Treasury has reported that about 1.3 million borrowers have received 

permanent loan modifications under HAMP as of November 30, 2013. 

However, as shown in figure 1, participation in HAMP, as measured by 

trial and permanent modifications started each month, peaked in early 

2010, generally declined in 2011, and has remained relatively steady 

through November 2013. Treasury made several changes to HAMP to 

address barriers to borrower participation, such as extending the 

application deadline for new HAMP modifications to December 2015 and 

expanding eligibility criteria for program participation. In particular, 

Treasury expanded the pool of homeowners potentially eligible to be 

assisted through the launch of HAMP Tier 2 in June 2012.23

 23Servicers must evaluate each loan secured by an owner-occupied property that meets 

the eligibility requirements for a HAMP Tier 1 modification before considering a borrower 

for a Tier 2 modification.

HAMP Tier 2 

expanded eligibility to various borrowers previously ineligible for HAMP, 

HAMP Participation 

and Expenditures 

Have Remained 

below Expectations

HAMP Participation Has 

Slowed, Leaving Obligated 

Funds Unspent
Page 12 GAO-14-117 Troubled Asset Relief Program

including borrowers with mortgages secured by “rental property” and 

borrowers with a wider range of debt-to-income ratios.24

Figure 1: Monthly HAMP and Combined Tier 1 and Tier 2 Activity Levels through November 2013

HAMP Tier 2 appears to have helped stem the decline in the number of 

new HAMP modifications added on a monthly basis. More than one-fourth 

of the permanent modifications started in November were Tier 2 

 24For the purposes of HAMP Tier 2 a “rental property” is defined as a property that is used 

by the borrower for rental purposes only and not occupied by the borrower, whether as a 

principal residence, second home, vacation home, or otherwise. Treasury has established 

various requirements, including a certification that the borrower intends to rent the 

property to a tenant or tenants for at least 5 years following the effective date of any 

permanent modification, to determine eligibility for a HAMP Tier 2 modification. Further, to 

be eligible for a HAMP Tier 2 modification the borrower may have a DTI below 31 percent, 

but no lower than 10 percent. Under HAMP Tier 2, the borrower’s postmodification 

monthly mortgage payment ratio (DTI ratio) must be greater than or equal to 10 percent 

and less than or equal to 55 percent. 
Page 13 GAO-14-117 Troubled Asset Relief Program

modifications (3,460 out of 12,996 modifications). Through November 

2013, a cumulative total of 29,134 borrowers had entered into a HAMP 

Tier 2 permanent modification representing about 11 percent of all 

permanent modifications started since the implementation of Tier 2 in 

June 2012. Tier 2 trial modifications represented about 18 percent of all 

trial modifications started since June 2012.

When HAMP was first announced in February 2009, Treasury had 

developed an internal projection that up to 3 million to 4 million borrowers 

who were at risk of default and foreclosure could be offered a loan 

modification under HAMP. However, we subsequently reported that 

because of the unsettled dynamics of the mortgage market and overall 

economic conditions, actual outcomes may well be different from the 

projection.25

 25GAO, Troubled Asset Relief Program: Treasury Actions Needed to Make the Home 

Affordable Modification Program More Transparent and Accountable, 

Further, Treasury stated to us that the number of potentially 

eligible borrowers has shrunk steadily since the beginning of the program, 

as has the number of delinquent borrowers across the mortgage industry, 

generally. Extending the deadline for HAMP applications and expanding 

program eligibility may provide more borrowers the opportunity to 

participate in the programs. However, because the number of borrowers 

that have received permanent modifications as of November 30, 2013 

(1.3 million) is well below Treasury’s initial estimate of 3 million to 4 

million and the pool of estimated HAMP eligible borrowers is declining, it 

is unclear whether Treasury will disburse all the funds it has obligated to 

MHA. As of November 30, 2013, $7.0 billion (23 percent) of the 29.9 

billion set aside for MHA had been disbursed. According to Treasury, if all 

active modifications made as of November 30, 2013, in association with 

MHA were to remain current and receive incentives for the full 5 years, 

$13.6 billion in incentives will ultimately be disbursed. However, this 

estimate does not take into account modifications that borrowers enter 

into after November 2013 through the program’s deadline of December 

31, 2015 nor does it consider the impact of redefaults on projected 

outlays. The Congressional Budget Office (CBO) has estimated that 

Treasury will ultimately disburse much less than the $29.9 billion currently 

obligated for MHA. In its May 2013 TARP update report, CBO estimated 

that only $16 billion, (about 53 percent) for all of the TARP-funded 

housing programs (MHA, HHF, and FHA Short Refinance Program), 

GAO-09-837

(Washington, D.C.: July 2009).
Page 14 GAO-14-117 Troubled Asset Relief Program

would likely be disbursed over those programs’ lifetimes.26 CBO stated to 

us that about $11 billion of their estimate was attributable to HAMP. 

CBO’s estimate assumed that participation rates would continue at the 

current pace and that redefault rates on modifications would remain 

consistent regardless of the year in which the modification was started. 

However, CBO’s May 2013 estimate did not consider the impact of the 2-

year extension of MHA through 2015. Treasury officials told us that 

because of the uncertainty in uptake due to the constantly changing 

economic environment, potential program changes, and in order to be 

conservative in their forecasts, they continue to assume that the entire 

$29.87 billion currently allocated for MHA will be used.

In May 2013, Treasury launched its MHA Outreach and Borrower Intake 

Project in “an effort to ensure that every potential borrower has a chance 

to be considered for foreclosure prevention assistance under MHA.”

Treasury entered into an agreement with NeighborWorks to launch a 

nationwide effort with housing counselors to increase the number of 

homeowners that successfully request assistance under MHA. The 

project’s goal is to make more homeowners aware of the full range of 

options under MHA and to help eligible homeowners successfully 

complete an MHA assistance application for servicers to consider.

Originally the project was scheduled to end in December of 2013, but 

Treasury extended the project through September of 2014. As a result, it 

is too early to determine the project’s impact on HAMP participation.

The project pays housing counseling agencies to conduct borrower 

outreach, assess borrowers for eligibility, help eligible homeowners 

prepare complete application packages, and deliver those packages to 

MHA servicers. The applications are to be submitted through the Hope 

LoanPort, an Internet-based document delivery portal that allows 

servicers to be notified when an application arrives. The Hope LoanPort 

uses an intake code to indicate whether the counseling agency is eligible 

for funding provided by Treasury under the project. Participating housing 

counseling agencies receive a document preparation and submission fee 

of $450 for each completed initial application package submitted to and 

accepted by a MHA servicer, even if the borrower does not receive a 

 26CBO, Report on the Troubled Asset Relief Program-May 2013 (Washington, D.C.: May 

23, 2013).

Impact of Treasury’s MHA 

Outreach and Borrower 

Intake Project on Program 

Participation is Unclear
Page 15 GAO-14-117 Troubled Asset Relief Program

modification. Additionally, participating agencies receive funding to cover 

outreach and administrative costs.

Initially, Treasury allocated $18.3 million in TARP funds for the MHA 

Outreach and Borrower Intake Project. Of this allocation, $12.6 million 

was to cover the costs of the document preparation and submission fee 

for 20,000 applications, outreach and certain administrative costs incurred 

by counseling agencies, and supplemental outreach funds to target 

specific populations that require specialized services.27 Treasury 

allocated the remaining $5.7 million to NeighborWorks’ for outreach and 

administrative costs associated with the project.28 However, according to 

NeighborWorks, only two-thirds of the housing counseling agencies 

eligible to participate in the project have decided to participate and 

received an application package allocation, resulting in a total of 92 

agencies participating with a production goal of 15,318 application 

packages to be submitted on behalf of borrowers.29

 27On June 28, 2013, NeighborWorks announced supplemental allocations totaling 

$500,000 to 10 state housing finance agencies, 12 HUD-approved housing counseling 

intermediaries, and 31 NeighborWorks organizations. These allocations provide funding 

for participating agencies targeting populations that are potentially eligible for MHA, but 

require culturally and linguistically specialized services, are underrepresented by 

mortgage modifications, or are disproportionately impacted by predatory lending or 

unemployment. 

As a result, nearly 

5,000 packages and $2.9 million remain unallocated to counseling 

agencies. As shown in table 1, NeighborWorks ultimately allocated about 

$9.2 million in funding to the 92 participating agencies to cover the cost of 

document preparation fees, outreach, and administration.

28According to NeighborWorks, it provided funding to agencies to support outreach 

activities designed to reach homeowners in need of mortgage assistance. The outreach 

funds allocated were the greater of $5,000 or 25 percent of the document preparation and 

submission fees. Further, HUD intermediaries and state housing finance agencies are 

provided with additional allocations to cover costs of quality control, oversight and 

management of funds, and training.

29Counseling agencies participating in the National Foreclosure Mitigation Counseling 

Program were invited to apply to participate in the MHA Outreach and Borrower Intake 

Project. NeighborWorks stated that agencies that chose to apply to participate in the 

project were required to submit an outreach plan and budget. NeighborWorks accepted all 

but two of the counseling agencies that had applied. Participating agencies were then 

allocated packages based on their National Foreclosure and Mitigation Counseling 

(NFMC) grant award.
Page 16 GAO-14-117 Troubled Asset Relief Program

Table 1: MHA Outreach and Borrower Intake Project Package Allocation to Housing Counseling Agencies

Participating agency 

type

Number of packages 

allocated

Initial funding 

allocation for 

participating agencies 

Supplemental outreach 

funds Total

State housing finance 

agencies (18)

4,502 $2,700,721 $157,730 $2,858,451

HUD counseling 

intermediaries (14)

8,504 $5,061,111 $225,525 $5,286,636

Community-based 

organizations (60)

2,312 $1,430,425 $114,075 $1,544,500

Total allocations 15,318 $9,192,257 $497,330 $9,689,587

Unallocated packages 

and funding 

4,682 $2,909,743 $2,670 $2,912,413

Total initial allocations 20,000 $12,102,000 $500,000 $12,602,000

Source: Treasury.

The MHA Outreach and Borrower Intake Project became effective in May 

2013. As of December 31, 2013, counseling agencies had submitted 

2,253 initial packages that had been accepted as complete by servicers 

under the program with another 878 initial packages in the process of 

being reviewed by the servicers. Document preparation fees associated 

with these packages totaled about $1.0 million. As of December 2013, 

NeighborWorks reported to us that they had disbursed over $1.9 million to 

housing counseling agencies for outreach and NeighborWorks had 

expended about $779,121 in administration costs associated with the 

project.

To assist agencies in meeting stated production goals, NeighborWorks 

generates a semimonthly Production Dashboard report for each housing 

counseling agency that is shared with the respective agency.30

 30The first Production Dashboard was delivered to the agencies in October 2013.

The 

Production Dashboard summarizes historical information, such as how 

many initial packages have been accepted by servicers as complete, and 

the percentage of the agency’s cumulative goal that has been reached. 

The Production Dashboard also includes intermediate goals and 

projections, such as how many initial packages the agency must submit 

each month to reach its cumulative goal, and how many initial packages 

are projected to be delivered by the end of the performance period (based 
Page 17 GAO-14-117 Troubled Asset Relief Program

on the agency’s average submission rate). Treasury stated that they 

periodically review the Production Dashboard for individual agencies, as 

needed.

An agency that does not meet its production goals would receive less 

compensation because document preparation fees are only paid for 

complete initial packages accepted by servicers. In addition, 

NeighborWorks may re-allocate funds from an underperforming agency to 

another agency if it reaches its allocation goal. However, Treasury 

officials noted that the funding for 20,000 applications had not been fully 

allocated and, thus, NeighborWorks would first allocate unallocated funds 

to any agency needing a higher allocation before reducing the allocation 

of an underperforming agency.

In addition to the Production Dashboard report, NeighborWorks provides 

Treasury with quarterly reports describing what housing counseling 

agencies have characterized as successes and challenges to project 

implementation. For example, in September 2013, NeighborWorks 

reported that 55 counseling agencies identified internal programmatic 

changes such as streamlining processes, specialized staff, and direct 

engagement with borrowers as factors associated with success. 

Counseling agencies also reported challenges with servicers that did not 

subscribe to the Hope LoanPort, unresponsive servicers, and borrowers 

that did not engage with counselors. Fully understanding and analyzing 

the nature of these successes and challenges could be useful to Treasury 

in working with NeighborWorks to improve the performance of the project. 

For example, Treasury stated to us that the majority of large MHA 

servicers subscribe to the Hope LoanPort, representing over 80 percent 

of HAMP activity. Treasury stated to us that servicers may have chosen 

not to subscribe to the Hope LoanPort due to the related subscription 

costs, and that the servicers that did not subscribe were generally either 

smaller servicers or those with their own document collection system. 

Additionally, Treasury noted that its compliance agent has begun 

assessing servicers’ processes associated with the MHA Outreach and 

Intake Project and has noted instances where certain servicers could 

enhance their design and execution of controls, but, the compliance 

agent’s loan level testing indicated that in most instances the loans were 

processed accurately and timely. By extending the project from 

December 2013 through September 2014, it is more likely that Treasury 

will reach its goal of 20,000 HAMP application packages completed 

through the project. However, it is not clear if the project is in fact 

increasing access to the program given the challenge of determining 
Page 18 GAO-14-117 Troubled Asset Relief Program

whether a borrower would have applied successfully in the absence of the 

project.

Treasury requires MHA servicers to develop an internal control program 

to monitor compliance with fair lending laws. However, Treasury has not 

evaluated the extent to which servicers have effective internal control 

programs for assessing compliance with fair lending laws. Additionally, 

Treasury requires servicers to collect and report data on the race, 

ethnicity, and gender of MHA applicants, but has not analyzed the data 

for potential differences in outcomes of groups protected under the laws. 

Our analysis of HAMP loan-level data, which focused on four large MHA 

servicers, identified some statistically significant differences within these 

servicers’ portfolios for certain protected groups in denials and 

cancellations of trial modifications and in the potential for redefault of 

permanent modifications, which might indicate a need for further review.

The MHA Servicer Participation Agreement and MHA Handbook require 

that servicers have an internal control program to monitor compliance 

with relevant consumer protection laws, including ECOA and the Fair 

Housing Act, and that the servicers review the effectiveness of their 

internal control program quarterly. The internal control program must 

document the control objectives for MHA activities, the associated control 

techniques, and mechanisms for testing and validating the controls. 

Servicers are also required to provide Treasury’s compliance agent with 

access to all internal control reviews related to MHA programs performed 

by the servicer and its independent auditing firm and to provide a copy of 

the reviews to the MHA program administrator.

Although Treasury requires MHA servicers to certify that they have 

developed and implemented an internal control program to monitor 

compliance with applicable consumer protection and fair lending laws, 

Treasury has not monitored servicers to determine whether they have 

developed such internal control programs. Specifically, Treasury officials 

told us that it has not required its compliance agent to obtain information 

from servicers on such programs. The five MHA servicers we spoke with 

told us that they had not shared with Treasury details on their internal 

control programs for monitoring compliance with fair lending laws. 

However, four of the servicers said that they regularly shared the details 

of these programs, as well as the results of fair lending analyses, with 

their federal financial regulators.

Treasury Has Not 

Assessed Servicers’

Internal Controls or 

Borrower Data 

Related to Fair 

Lending

Treasury Requires 

Servicers to Develop and 

Maintain Systems to 

Monitor Compliance with 

Fair Lending Laws
Page 19 GAO-14-117 Troubled Asset Relief Program

Treasury officials explained that Treasury does not examine servicer 

compliance with fair lending laws because other federal agencies—

CFPB, DOJ, FTC, HUD, and the banking regulators—have the sole 

responsibility for enforcement and supervision of federal fair lending laws. 

Therefore, only those agencies, and not Treasury, are charged with the 

responsibility for determining whether a servicer (subject to the 

jurisdiction of the appropriate agency) complies with the federal fair 

lending laws. According to representatives of the prudential regulators, 

their fair lending reviews have a broader overall focus, which include 

examining the servicers’ overall servicing and loss mitigation activities.31

They added that, while the reviews may not specifically focus on MHA 

activities, HAMP modifications may be included in the loan portfolios of 

the MHA servicers examined. Officials from two prudential regulators said 

that their examinations of servicing portfolios had resulted in supervisory 

guidance to a few of the larger MHA servicers related to (1) potential 

disparities between certain fair lending protected classes and their 

comparison populations, (2) communication issues with non-English 

speaking borrowers, and (3) handling of loss mitigation and loan 

modification complaints. Additionally, one regulator, on behalf of the 

Financial Fraud Enforcement Task Force’s (FFETF) Non-Discrimination 

Working Group, conducted exploratory analysis to characterize outcomes 

of the HAMP program and identify fair lending risks.32

 31Prudential regulators conduct examinations of the depository institutions they oversee to 

assess their fair lending compliance, including determining whether lenders have violated 

ECOA or the Fair Housing Act. Those examinations may include an assessment of 

lenders' fair lending compliance specifically in the mortgage servicing area.

According to 

officials from this regulator, the aggregate results of the exploratory 

analysis were shared with Treasury and other members of the NonDiscrimination Working Group in January 2012, and no fair lending issues 

of note were identified. Additionally, officials said that this regulator also 

shared the supervisory guidance discussed above and summaries of its 

fair lending reviews, which included statistical analysis of MHA servicers 

under its jurisdiction, with the working group.

32In November 2009, the President created the FFETF, a multiagency effort to combat a 

range of financial crimes relating to the recent financial crisis and recovery efforts. FFETF 

is composed of more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and 

local partners. The task force established the Non-Discrimination Working Group, which 

focuses on discrimination in the housing and finance markets. The working group is cochaired by senior officials of DOJ, HUD, the Federal Reserve, and the National 

Association of Attorneys General.
Page 20 GAO-14-117 Troubled Asset Relief Program

Officials from the prudential regulators noted that they consider 

complaints from consumers alleging discriminatory practices in their 

examinations of regulated banking institutions. According to the prudential 

regulators, results of their fair lending examinations are considered 

confidential supervisory information and are sensitive and privileged. The 

regulators explained that because of the nature of the information, they 

would not have shared the details of examination results with Treasury.

Further, these regulators told us that they had not identified fair lending 

violations related to the MHA program specifically.

Treasury officials told us that while they have not specifically examined 

servicers’ controls for ensuring compliance with fair lending laws, the 

compliance agent did examine servicers’ internal controls related to other 

HAMP requirements, such as soliciting borrowers who are 60 days 

delinquent and performing “second look” loan reviews which focused on 

determining whether HAMP denials were appropriate. Additionally, 

Treasury officials noted that the processes servicers use to solicit 

borrowers and determine the eligibility and terms of a modification were 

highly structured due to MHA requirements. These processes limit 

servicer discretion with respect to implementing the MHA requirements, 

and as a result, outcomes in HAMP modifications are less likely to result 

in fair lending compliance issues, according to Treasury officials. Despite 

the structured nature of HAMP, we have previously found instances 

where servicers varied their application within HAMP guidelines. For 

example, in 2010 we reported that servicers have inconsistent practices 

for evaluating borrowers for imminent default because Treasury has not 

provided specific guidance on how to evaluate nonenterprise borrowers 

for imminent default. 33 Additionally, Treasury does not require servicers 

to apply principal reduction in connection with modifications; instead 

servicers are required to establish written policies detailing when principal 

reduction will be offered.34

 33GAO, Troubled Asset Relief Program: Home Affordable Modification Program Continues 

to Face Implementation Challenges, 

While these policies must treat similarly 

situated borrowers in a consistent manner, there may be variations 

across servicers in the use of principal reduction and in some cases 

servicers may reasonably refuse to reduce principal.

GAO-10-556T (Washington, D.C.: Mar. 25, 2010). 

34GAO, Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably 

Implement Foreclosure Mitigation Programs, GAO-10-634 (Washington, D.C.: June 24, 

2010).
Page 21 GAO-14-117 Troubled Asset Relief Program

Also, servicers, and their employees, may make errors in applying HAMP 

policies to modifications. For example, in 2010 we reported that 5 of the 

10 servicers we contacted reported at least a 20 percent error rate for 

income calculations. We noted that without accurate income calculations, 

which are key in determining borrowers’ DTI, similarly situated borrowers 

applying for HAMP may be inequitably evaluated for the program and 

may be inappropriately deemed eligible or ineligible for HAMP.35

Although the prudential regulators have not identified any fair lending 

violations of MHA servicers, they did share some fair lending-related 

concerns of some large MHA servicers with Treasury. Furthermore, 

opportunity for variations and errors within and across servicers can 

impact borrowers. By evaluating the extent to which servicers have

developed and maintained internal controls to monitor compliance with 

fair lending laws, Treasury could gain additional assurance that servicers 

are implementing the MHA program in compliance with fair lending laws.

Treasury 

also assesses servicers on their income calculations and tracks the 

percentage of loans for which MHA-C’s income calculation differs from 

the servicer’s on a quarterly basis. In their July 2013 assessment results, 

Treasury noted an average income error rate of less than 2 percent, down 

from an average of about 7.5 percent in July 2011.

Treasury requires that MHA servicers collect and report data on the race, 

ethnicity, and gender of borrowers seeking HAMP modifications or 

entering into a HAMP trial or permanent modification. While Treasury has 

not yet examined the data to understand if there are any potential fair 

lending risks in servicers’ implementation of HAMP, and thus if servicers’

fair lending internal controls are sufficient, Treasury does provide those 

data to federal agencies charged with oversight and enforcement of fair 

lending laws. As the federal agency with authority for enforcement of the 

Fair Housing Act, HUD requested that Treasury require servicers to 

collect this information, and servicers began collecting and reporting it 

beginning on December 1, 2009.36

 35

Treasury shares loan-level HAMP 

GAO-10-634. One of the eligibility requirements for HAMP Tier 1 is that the borrower’s 

first-lien mortgage payment must be more than 31 percent of the homeowner’s gross 

monthly income. Therefore, if the servicer determines that the borrower’s debt-to-income 

(DTI) ratio is already less than 31 percent, then the servicer would deem the borrower 

ineligible for HAMP Tier 1.

36Supplemental Directive 09-02, Home Affordable Modification Program – Fair Housing 

Obligations under the Home Affordable Modification Program, April 21, 2009. 

Treasury Collects but Has 

Not Analyzed MHA Data 

Related to Fair Lending
Page 22 GAO-14-117 Troubled Asset Relief Program

data, including information on the servicer and the borrowers’ race, 

ethnicity, and gender, with the federal agencies with fair lending oversight 

and enforcement authority.37

Our analysis of Treasury’s HAMP data through April 17, 2013, suggested 

that there may be some issues that warrant a closer look at servicers’ fair 

lending internal control systems by Treasury and the pertinent fair lending 

regulatory agency.

Treasury also makes a more limited public 

file available to the general public that excludes, among other things, 

information identifying the servicer and personal identifying information 

about the borrower (name, address, etc.). On first releasing the public file 

containing loan-level data in January 2011, Treasury stated that it 

intended to engage one or more independent, third-party research firms 

to conduct a more detailed analysis of fair lending in MHA and that it 

would make the results of this analysis available to the public. In March 

2013, Treasury entered into an interagency agreement with HUD to 

engage a third-party contractor to conduct a fair lending analysis of 

HAMP loan modifications. As of September 30, 2013, HUD secured a 

contractor to conduct the analysis.

38 We examined the rate of denial or cancellation of 

HAMP modifications, and the rate of redefault of permanent HAMP 

modifications experienced by selected population groups and compared 

them to the same rates for their comparison populations at various stages 

of the HAMP process. We primarily focused on the outcomes for certain 

protected groups under federal fair lending laws plus low-income groups 

and groups in neighborhoods that consisted primarily of minority 

populations (substantially minority); we refer to these groups collectively 

as “selected populations.”39

 37Treasury provides data to FRB, OCC, FDIC, HUD, and the Federal Housing Finance 

Agency. As of November 2013, Treasury officials told us they were working to provide the 

same data file to CFPB as they provide to other federal agencies and with the same 

frequency. 

We used a multivariate econometric analysis 

38See appendix II for additional information on the description of the data we used, details 

of the regression analysis, previous relevant studies, and results of our analysis. 

39Our econometric analysis focused on certain protected classes as defined by the Equal 

Credit Opportunity Act and Fair Housing Act (which we refer throughout the report as “fair 

lending populations”)—women, non-Hispanic African-Americans, Hispanics, non-Hispanic 

Asians, and non-Hispanic American Indians or Alaska Natives, and Native Hawaiians or 

Other Pacific Islanders—as well as low- and moderate-income groups and persons living 

in substantially minority neighborhoods. We define substantially minority neighborhoods 

as census tracts where the proportion of all minority households (based on race and 

ethnicity) was at least 30 percent.
Page 23 GAO-14-117 Troubled Asset Relief Program

to control for several observable characteristics of the borrower, servicer, 

loan, and property, allowing us to appropriately estimate the outcomes 

these populations experienced.

40

We are unable to determine from the available HAMP data whether the 

statistically significant differences between the selected populations and 

their comparison populations identified in our analysis were the result of 

servicer discretion, servicer errors in the application or interpretation of 

HAMP guidelines or servicing protocols, differences among servicers’

policies, or the unintended consequences of HAMP guidelines or program 

design. Additional analysis is needed to determine the reasons for the 

differences and the extent to which servicer implementation of HAMP 

guidelines could be a potential cause as well as other potential causes for 

the differences in outcomes. As noted in appendix II, there are some 

limitations of our analysis. For instance, we could not control for all 

potential factors that affect these outcomes due to the lack of certain 

data, such as the wealth of the borrowers and their knowledge of the loan 

modification process. Also, our analysis cannot account for some 

important factors, such as whether equivalent borrowers in these 

populations apply to HAMP at different rates or are more or less likely to 

In focusing our analysis on four large 

MHA servicers, we found some statistically significant differences in the 

outcomes experienced by our selected populations compared to their 

comparison population. For example, we found that for all four servicers 

non-Hispanic African-Americans had a statistically significant higher trial 

modification denial rate compared to non-Hispanic whites due to DTIs 

being less than 31 percent. When examining denials of trial modifications 

because borrowers had not provided complete information to the servicer, 

denial rates were significantly higher for Hispanics than for the

comparison population of non-Hispanic whites for three of the four large 

servicers we analyzed. We also found that for all of the servicers we 

analyzed, non-Hispanic African-Americans had a statistically higher rate 

of redefault than non-Hispanic whites, regardless of whether or not the 

servicer applied capitalization, principal forbearance, or principal 

forgiveness to the loan modification, holding other key factors constant. 

For additional findings from our analysis, see appendix II.

 40We also used several factors that are typically used to capture the creditworthiness of 

borrowers in mortgage markets, such as delinquency status of borrowers before the 

modification, Fair Isaac Corporation (FICO) credit scores at modification, DTI for both the 

front-end before modification and back-end after modification, and the LTV of the property 

at origination and at the time of the modification. 
Page 24 GAO-14-117 Troubled Asset Relief Program

receive assistance outside of HAMP. Further, race and ethnicity data 

were not available for 54 percent of borrowers in the early stage of the 

HAMP process and 43 percent of borrowers in the later stage of HAMP. 

Although we took appropriate steps to minimize the impact of missing 

data our results should be interpreted with caution.41

Despite the limitations noted above, statistical differences in outcomes 

among population groups might suggest potential fair lending concerns 

that merit further examination. Officials from fair lending regulatory 

agencies told us that results of econometric analyses of fair lending 

populations were one of multiple sources of information they review when 

examining fair lending compliance of banking institutions and servicers.

They noted that the existence of a statistical disparity alone would not 

necessarily result in the finding of a fair lending violation but could be a 

reason to further investigate an institution. Such analyses could be useful 

to Treasury as the agency considers whether servicers participating in the 

HAMP program have sufficient internal controls to assess compliance 

with fair lending laws.

 41Our previous work on MHA found that Treasury’s HAMP database was missing a 

significant amount of information on borrowers’ race and ethnicity, resulting in an inability 

to assess whether HAMP is being fairly implemented across servicers. As of September 

30, 2010, race and ethnicity information was not available for 65 percent of nonenterprise 

borrowers in active trial modifications. See GAO, Troubled Asset Relief Program: Treasury 

Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home 

Affordable Program, GAO-11-288 (Washington, D.C.: Mar. 17, 2011). For this analysis we 

used data through April 17, 2013, and fewer race and ethnicity data were missing. While 

servicers are required to request race and ethnicity information from borrowers, borrowers 

have the option of providing it. 
Page 25 GAO-14-117 Troubled Asset Relief Program

Treasury has taken various actions to increase access to the program for 

borrowers whose primary language is not English, but only recently has 

begun to systematically assess access to the MHA program, for these 

borrowers. Federal agencies, including Treasury, are required by 

Executive Order 13166, issued in August 2000, to “examine the services 

it provides and develop and implement a system by which LEP persons 

can meaningfully access those services.” Under MHA, borrowers apply 

for and obtain mortgage modifications directly from their mortgage 

servicers. Although Treasury has not specified for servicers how they 

should meet the needs of LEP persons or assessed their efforts to do so, 

it has taken steps to provide information and support to LEP borrowers in 

connection with MHA through various sources and methods. For 

example, Treasury publishes a website with information about the MHA 

program (www.makinghomeaffordable.gov), which has a mirror Spanish 

website and critical content pages in Chinese, Vietnamese, Russian, 

Tagalog, and Korean. Treasury also has published advertisements and 

public service announcements in Spanish, and conducted outreach to 

Spanish-speaking media as well. Additionally, the MHA website, along 

with Treasury’s outreach materials, directs interested homeowners to the 

Homeowners HOPETM Hotline, which provides over-the-telephone 

support to LEP borrowers related to MHA programs. As part of the MHA 

escalations process, Treasury also provides a toll-free call center—MHA 

Help—where, according to Treasury, LEP borrowers can receive more 

specialized assistance over the phone. Treasury has also translated the 

MHA application form and certain outreach materials in other languages 

such as Spanish, Chinese, Korean, Russian, Vietnamese, and Tagalog. 

However, it does not require that servicers use the translated materials.

The executive order also directs federal agencies to “prepare a plan to 

improve access to its federally conducted programs and activities by 

eligible LEP persons.” The plans are to include the steps the agency will 

take to ensure that eligible LEP persons can meaningfully access the 

agency’s programs and activities. In February 2011, the Attorney General 

issued a memorandum to the heads of federal agencies that renewed the 

federal government’s commitment to language access obligations under 

the executive order and called on agencies to, among other things, review 

their programs and activities for language accessibility and submit an 

Treasury Has 

Provided Servicers 

with Limited 

Guidance and 

Oversight on 

Interacting with 

Borrowers with 

Limited English 

Proficiency
Page 26 GAO-14-117 Troubled Asset Relief Program

updated LEP plan within 6 months after the date of the memorandum.42

Treasury’s draft LEP plans and guidance are directed towards their own 

policies and procedures, and do not address how MHA servicers should 

interact with LEP borrowers. As noted in a LEP planning tool issued by 

the Department of Justice, it is important for agencies to examine the 

manner in which the agency interacts with the public and/or LEP 

individuals.

Treasury issued its last LEP plan in 2000 and, as such, it did not cover 

newer programs such as MHA that began in early 2009. As of November 

2013, Treasury was working on finalizing an updated agency-wide LEP 

plan, which would address newer programs and activities, such as the 

MHA programs. The draft plan indicated that Treasury intended to publish 

the plan in the Federal Register and on the Treasury website for public 

comment. The draft plan included information related to Treasury’s 

assessment of the language needs for the MHA programs. In addition, it 

described Treasury’s current and planned steps to assist LEP borrowers 

in accessing the information and support provided by Treasury in 

connection with the MHA programs. Additionally, Treasury’s Office of 

Financial Stability (OFS) has developed draft guidelines to assist OFS 

staff in providing access to LEP persons in connection with the MHA 

activities described above.

43 In the case of MHA programs, LEP borrowers access the 

benefits of the MHA programs through MHA servicers that play a key role 

in reaching out to borrowers to inform them of their potential eligibility and 

assist them through the application process. In May 2011, Treasury 

required that servicers develop and implement a single point of contact 

policy and that the policy “include a provision for providing effective 

relationship management to borrowers whose primary language is a 

language other than English.”44

 42Department of Justice, Office of the Attorney General, Federal Government’s Renewed 

Commitment to Language Access Obligations Under Executive Order 13166, 

Memorandum to the Heads of Federal Agencies, General Counsels, and Civil Rights 

Heads (Washington, D.C.: Feb. 17, 2011). 

Representatives of the five servicers we 

contacted said that Treasury had not provided any guidance on what a 

43Department of Justice, Federal Coordination and Compliance Section, Civil Rights 

Division, Language Access Assessment and Planning Tool for Federally Conducted and 

Federally Assisted Programs (May 2011).

44Supplemental Directive 11-04, Making Home Affordable Program, Single Point of 

Contact for Borrower Assistance (May 18, 2011) and Section 4.2 of Chapter I of the MHA 

Hand book for Servicers of Non-GSE Mortgages, version 4.3 (Sept. 16, 2013). 
Page 27 GAO-14-117 Troubled Asset Relief Program

policy on effective relationship management should include, which 

Treasury confirmed. Treasury officials also told us that they had not 

required their compliance agent to review servicers’ implementation of the 

requirement for effective relationship management for LEP borrowers. 

According to Treasury officials, concerns about LEP borrowers’ lack of 

access to MHA were only recently raised as an issue by consumer 

advocates in May 2013. In response to this feedback, Treasury 

conducted a survey of the LEP-related policies of the 17 largest MHA 

servicers to better understand how these servicers worked with LEP 

borrowers. All of the 17 servicers Treasury surveyed reported that they 

had staff that spoke Spanish, and 15 servicers indicated that they had 

contracted with a vendor for real-time translation. Representatives of four 

MHA servicers we contacted confirmed this practice. The remaining 

servicer told us that they contract with a vendor for all non-English 

customer communication related to modifications. Additionally, 

representatives of three servicers told us that their firms had electronic 

systems that could note in the borrower’s file if the borrower’s primary 

language was Spanish. However, the systems contain no similar notation 

for other languages. Three servicers we spoke with told us that they also 

referred borrowers to the Homeowners HOPETM Hotline to find a housing 

counseling agency that could assist with languages.

Nonetheless, representatives of some advocacy groups we spoke to 

raised concerns about the sufficiency of the practices followed by 

servicers in meeting the needs of non-English-speaking borrowers. The 

advocacy groups represented housing counseling agencies whose 

counselors worked one-on-one with potential HAMP borrowers and legal 

services attorneys. These groups were concerned that servicers’ current 

practices of using Spanish-speaking staff or contracting with a language 

interpretation service were insufficient. For example, one advocacy group 

said that some servicers used Spanish-speaking customer service agents 

who might be knowledgeable about banking and mortgages generally, but 

not about servicing, loss mitigation, or HAMP specifically. Similarly, 

representatives of three advocacy groups noted that staff from a 

language interpretation service might not be familiar enough with banking 

terminology or the details of HAMP to provide quality interpretation 

services. Another group pointed out the importance of translated 

documents and noted that it would be more beneficial for borrowers to 

have important documents, such as the trial modification offer letter, 

translated into their preferred language so that they could refer to it when 

needed. In fact, in a 2013 national survey conducted by the National 

Housing Resource Center and a similar survey conducted by a Californiabased research group, nearly half of the 296 housing counselors who 
Page 28 GAO-14-117 Troubled Asset Relief Program

responded said their LEP clients who were seeking mortgage servicing 

assistance “never” received translated foreclosure-related documents. 45

Ultimately, the lack of clear guidance and expectations of servicers on 

what constitutes effective relationship management in serving LEP 

borrowers can potentially affect the effectiveness of servicers’ ability to 

work with such borrowers and result in unequal access to the program by 

these borrowers. Treasury officials noted that MHA-eligible loans 

represent a small portion of participating servicers’ overall servicing 

activity, and thus Treasury is cautious in imposing additional requirements 

on participating servicers that could lead to excessive costs and burdens. 

They added that participating servicers interact with borrowers from a 

number of communities that speak a variety of languages and are in a 

better position to ascertain how to best provide effective relationship 

management to the LEP borrowers they serve. According to Treasury, 

servicers have told Treasury that mandating the translation or use of 

certain documents, among other things, would be of little benefit given the 

overall low demand for such documents in languages other than English, 

the added legal risks, the potential for inaccurate translation, and 

increased costs associated with the translation of documents. Treasury 

also noted that it may not be appropriate to require servicers to conduct 

business in languages other than English, especially when other 

regulators have not done so. For example, they noted that CFPB’s recent 

mortgage servicing rules do not require servicers to accept applications in 

other languages or provide specific translation services. Treasury officials 

stated that the issues faced by LEP borrowers extend beyond HAMP to 

the broader areas of loss mitigation and mortgage origination. 

Additionally, in both surveys, over 60 percent of the housing counselors 

said that their LEP clients were “never” or only “sometimes” able to speak 

to their servicer in their native language or through a translator provided 

by the servicer, while the rest said their clients were “always” or “often”

able to do so. Furthermore, in the national survey, nearly half of the 

survey respondents said their LEP clients “always,” “often,” or 

“sometimes” received worse loss mitigation outcomes than their Englishproficient clients, while the other half said their clients “never” received 

worse outcomes.

 45National Housing Resource Center, National Mortgage Settlement Servicing Standards 

and Noncompliance: Results of a National Housing Counselor Survey (Philadelphia, Pa., 

2013). California Reinvestment Coalition, Chasm Between Words and Deeds IX: Bank 

Violations Hurt Hardest Hit Communities (2013). 
Page 29 GAO-14-117 Troubled Asset Relief Program

Accordingly, Treasury believes that it is appropriate for such industry-wide 

issues to be addressed by those government entities that have broad 

jurisdiction over the financial institutions operating in these fields. 

However, the MHA program provides direct outlays of taxpayer dollars to 

servicers and is intended to provide benefits to eligible borrowers. As 

such, it is important that Treasury take appropriate steps to help ensure 

that all eligible borrowers, including those whose primary language is not 

English, have access to the MHA program benefits.

Without guidance on effective relationship management for LEP 

borrowers, the policies that MHA servicers develop may vary, and LEP 

borrowers may be treated differently across servicers, depending on 

which company services their loan. Additionally, because Treasury has 

not provided guidance to servicers describing the essentials of a 

relationship management policy for LEP borrowers, Treasury is limited in 

what it can measure when assessing servicers’ compliance with 

Treasury’s requirement or the effectiveness of their current practices for 

interacting with LEP borrowers. Ultimately, the lack of LEP policies and 

procedures for the MHA programs and clear expectations for effective 

relationship management make it less likely that servicers may effectively 

meet borrowers’ needs for language services and therefore limit their 

opportunity to benefit from MHA.

While below initial expectations, over a million borrowers have had their 

mortgages modified under the program. However, with respect to MHA 

servicer compliance, Treasury could be taking additional steps to ensure 

that borrowers are being treated in accordance with fair lending laws. 

MHA servicers are required to develop an internal control program to 

monitor compliance with fair lending laws that prohibit discrimination. 

However, Treasury has not examined servicers’ internal control programs 

or conducted any analysis of borrowers’ outcomes in HAMP modifications 

to identify potential fair lending risks. Our analysis found some statistically 

significant differences in the outcomes of fair lending populations, when 

compared to others, and while these variations alone do not indicate that 

borrowers were treated differently, they suggest that further examination 

may be warranted. Conducting further analyses would permit Treasury to 

better identify where it might apply examination resources, such as those 

of its compliance agent, and ascertain whether these differences are due 

to servicers’ discretion in the application of HAMP guidelines or other 

factors. By requiring its compliance agent to review the fair lending 

internal controls of loan servicers, or reviewing the data MHA servicers 

collect on the race, ethnicity, and gender of borrowers, Treasury could 

Conclusions
Page 30 GAO-14-117 Troubled Asset Relief Program

gain additional assurance that servicers are implementing the MHA 

program in compliance with fair lending laws as the servicers contracted 

to do.

Finally, despite an executive order issued in 2000 to improve access to 

federal programs for people with limited English proficiency and a 2011 

memorandum by the Attorney General renewing the federal government’s 

commitment to that executive order, Treasury officials have only recently 

developed a written plan that covers the Making Home Affordable 

programs as of November 2013. While Treasury does take certain 

measures to raise awareness and outreach to LEP borrowers, it does not 

provide any clarifying guidance to servicers on its requirement to have a 

relationship management policy for their LEP borrowers. According to a 

Treasury survey of MHA servicers and our discussions with five large 

MHA servicers, these servicers had some processes in place to assist 

LEP borrowers, such as using an oral translation service. Housing 

counselors and housing advocacy groups that work with LEP borrowers 

have questioned the ability of servicers to assist LEP borrowers. Without 

additional guidance on providing meaningful language assistance, LEP 

borrowers may be treated differently across servicers and have unequal 

access to the MHA program. Moreover, Treasury has not assessed the 

effectiveness of its own or its servicers’ LEP practices. Further, without 

more specific guidance on what it expects of servicers in ensuring LEP 

access, Treasury and its compliance agent are limited in their ability to 

assess servicers’ compliance with those requirements.

As part of Treasury’s efforts to continue improving the transparency and 

accountability of MHA, we recommend that the Secretary of the Treasury 

take actions to

• require that its compliance agent take steps to assess the extent to 

which servicers have established internal control programs that 

effectively monitor compliance with fair lending laws that apply to 

MHA programs;

• issue clarifying guidance to servicers on providing effective 

relationship management to limited English proficiency borrowers; and

• ensure that the compliance agent assess servicers’ compliance with 

LEP relationship management guidance, once established.

Recommendations for 

Executive Action
Page 31 GAO-14-117 Troubled Asset Relief Program

We provided a draft of this report to CFPB, DOJ, FDIC, Federal Reserve, 

HUD, OCC, and Treasury for review and comment. We received a 

written comment letter from Treasury, which is presented in appendix III. 

We also received technical comments from CFPB, DOJ, Federal 

Reserve, HUD, and Treasury that are incorporated as appropriate in the 

report. FDIC and OCC did not provide any comments on the draft report. 

In its comment letter, Treasury noted that it was still considering our 

findings and recommendations, and agreed that it should continue to 

strengthen its program in order to help as many homeowners as possible 

avoid foreclosure. Treasury also noted that since MHA’s launch in 2009, 

more than 1.9 million homeowner assistance actions had taken place 

under the program and that they continue to take action to maximize 

participation rates. In response to our recommendation that it take action 

to require that its compliance agent begin assessing the extent to which 

servicers had established internal control programs that effectively 

monitor compliance with fair lending laws, Treasury said that it remained 

committed to working to ensure that homeowners are treated fairly by 

servicers participating in MHA. Treasury stated that it had a robust 

compliance program to assess servicers’ performance and that it 

published the results of its assessments to provide greater transparency 

and hold servicers accountable. However, as noted earlier, Treasury does 

not require its compliance agent to assess servicers’ internal control 

programs for monitoring fair lending compliance. Treasury stated that it 

planned to continue to explore ways to promote fair lending policies,

including through coordination with fair lending supervisions and 

enforcement agencies and improving access to data. We agree that 

continuing to improve the transparency and accountability of MHA is 

important. As part of this effort, it will be important that Treasury require 

its compliance agent to assess the extent to which servicers have 

established internal control programs that effectively monitor compliance 

with fair lending laws that apply to MHA programs. 

Treasury also provided comments related to our recommendations that 

Treasury issue clarifying guidance to servicers on providing effective 

relationship management to limited English proficiency borrowers and 

ensure that its compliance agent assess servicers’ compliance with this 

guidance. Treasury noted that it recognized the challenges homeowners 

with limited English proficiency faced, and had made some program 

materials available in other languages and sponsored call centers that 

offer translation services. Treasury added that the challenges faced by 

these homeowners extend beyond MHA to industry-wide areas of loan 

servicing and mortgage lending. Treasury stated that it would continue to 

Agency Comments 

and Our Evaluation
Page 32 GAO-14-117 Troubled Asset Relief Program

explore additional ways to assist LEP homeowners and work with federal 

regulators that have broad jurisdiction over these issues. While these 

challenges likely extend beyond the MHA program, the MHA program 

provides direct outlays of billions of taxpayer dollars in incentive 

payments to participating servicers and is intended to provide benefits to 

all eligible borrowers needing assistance to avoid foreclosure. Taking 

appropriate steps to help ensure that LEP borrowers have access to the 

MHA program benefits would place this federal program in the forefront of 

efforts to reach these borrowers and ensure that taxpayer dollars are put 

to the most effective use. 

In its technical comments, Treasury indicated that it disagreed with three 

statements in the draft report. Specifically, Treasury disagreed with our 

characterization of participation levels in the HAMP first-lien modification 

program as declining despite Treasury’s efforts to increase participation. 

We modified the text to clarify that since the implementation of HAMP Tier 

2 in June 2012, the number of modifications started each month has been 

relatively steady through November 2013. Treasury also questioned the 

accuracy of our statement that it lacked assurance that the MHA program, 

and servicers’ implementation of it, were treating all borrowers fairly and 

consistently citing, among other things, the role of the prudential 

regulators in enforcing fair lending laws and its compliance program for 

assessing the performance of participating servicers. However, these 

mechanisms only provide limited assurance since, as noted previously in 

the report, the prudential regulators do not focus their fair lending reviews 

on MHA program activity and Treasury’s compliance program does not 

look at the fair lending controls of participating servicers. As a result, we 

continue to believe that it is important that Treasury require its compliance 

agent to assess the internal control programs that servicers are required 

to put into place to monitor compliance with fair lending laws that apply to 

MHA programs. Lastly, Treasury noted in its technical comments that it 

disagreed with the statement that it has only recently begun to 

systematically assess and take measures to ensure access to the 

program for borrowers whose primary language is not English. We 

clarified the text to acknowledge the actions taken to raise awareness and 

outreach to LEP borrowers, but that Treasury has not provided guidance 

to servicers on its requirement to have a relationship management policy 

for their LEP borrowers or assessed the effectiveness of its own or its 

servicers’ LEP practices. 
Page 33 GAO-14-117 Troubled Asset Relief Program

We are sending copies of this report to the appropriate congressional 

committees. This report will also be available at no charge on our website 

at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact 

me at (202) 512-8678 or sciremj@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made major contributions to this report 

are listed in appendix IV.

Mathew J. Scirè

Director

Financial Markets and

Community Investment
Page 34 GAO-14-117 Troubled Asset Relief Program

List of Committees

The Honorable Barbara Mikulski

Chairwoman

The Honorable Richard C. Shelby

Vice Chairman

Committee on Appropriations

United States Senate

The Honorable Tim Johnson

Chairman

The Honorable Mike Crapo

Ranking Member

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Patty Murray

Chairman

The Honorable Jeff Sessions

Ranking Member

Committee on the Budget

United States Senate

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member 

Committee on Finance

United States Senate

The Honorable Hal Rogers

Chairman

The Honorable Nita Lowey

Ranking Member

Committee on Appropriations

House of Representatives

The Honorable Paul Ryan

Chairman

The Honorable Chris Van Hollen

Ranking Member

Committee on the Budget

House of Representatives
Page 35 GAO-14-117 Troubled Asset Relief Program

The Honorable Jeb Hensarling

Chairman

The Honorable Maxine Waters

Ranking Member 

Committee on Financial Services

House of Representatives

The Honorable Dave Camp

Chairman

The Honorable Sander Levin

Ranking Member

Committee on Ways and Means

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 36 GAO-14-117 Troubled Asset Relief Program

The objectives in this report were to examine (1) the status of Making 

Home Affordable (MHA) and steps Treasury is taking to increase 

participation in the program, (2) Treasury’s oversight of the MHA-related 

fair lending internal controls of participating servicers, and (3) Treasury’s 

and MHA servicers’ policies and practices for ensuring that borrowers 

with limited English proficiency (LEP) have equal access to the program.

To examine the status of the MHA programs, we reviewed and analyzed

Treasury’s Monthly MHA Performance Reports and MHA program and 

expense information in the quarterly reports to Congress issued by the 

Special Inspector General for the Troubled Asset Relief Program 

(SIGTARP). We also reviewed the Congressional Budget Office’s (CBO) 

Report on the Troubled Asset Relief Program (TARP) and spoke to CBO 

officials about their costs estimates for the MHA program.1

To examine Treasury’s oversight of the MHA-related fair lending internal 

controls of participating servicers, we reviewed MHA program 

documentation, such as the Servicer Participation Agreement, MHA 

Handbook, and associated Supplemental Directives, to understand 

servicers’ fair lending obligations. We spoke with officials at Treasury to 

gather information on their oversight of MHA servicers’ practices. We also 

spoke with other federal agencies with fair lending oversight authority to 

gather information on the results of their fair lending oversight of MHA 

servicers. Specifically, we spoke with officials from the Department of 

Housing and Urban Development (HUD), Department of Justice (DOJ), 

Bureau of Consumer Financial Protection (CFPB), and three depository 

institution prudential regulators (the Federal Deposit Insurance 

Corporation (FDIC), the Board of Governors of the Federal Reserve 

System (Federal Reserve), and the Office of the Comptroller of the 

Currency (OCC)). Further, we spoke with staff at the five largest MHA 

servicers, in terms of HAMP trial modifications approved, about their 

We also spoke 

with Treasury officials to obtain their views on future MHA expenditures. 

To understand steps Treasury has taken to increase program 

participation, we reviewed Treasury’s Supplemental Directive and spoke 

with Treasury officials about their MHA Outreach and Borrower Intake 

Project. We also spoke to and reviewed documentation from 

NeighborWorks America about their involvement in the project.

 1

CBO, Report on the Troubled Asset Relief Program-May 2013, (Washington, D.C.: May 

23, 2013). 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 37 GAO-14-117 Troubled Asset Relief Program

internal control programs and compliance with fair lending laws. The five 

servicers we selected—Bank of America, CitiMortgage, JPMorgan Chase 

Bank, Ocwen Loan Servicing, and Wells Fargo Bank—collectively 

represented about 77 percent of the total HAMP trial loan modifications 

approved, as of October 2013. 

In order to determine if any potential disparities exist in the outcomes of 

borrowers in protected classes and other groups, we compared their 

outcomes to that experienced by other borrowers, for four large servicers. 

We obtained and analyzed Treasury’s HAMP data in its system of record, 

Investor Reporting/2 (IR/2), through April 17, 2013. For additional 

information on the data reliability and methodology for this analysis, see 

appendix II. We determined that the IR/2 data were sufficiently reliable for 

the purposes of our analysis.

To understand how Treasury and MHA servicers ensure access to MHA 

for LEP borrowers, we examined Treasury’s 2000 LEP plan and its 

updated LEP plan and MHA guidelines, which are still in draft form. We 

reviewed MHA program documentation to understand servicers’

obligations regarding LEP borrowers and spoke with Treasury officials 

about their review of servicers’ LEP policies and practices. We reviewed a 

recent survey Treasury conducted of 17 servicers to understand how 

servicers work with LEP borrowers. Further, we spoke with the 5 

servicers we contacted about their current LEP policies and practices and 

Treasury’s oversight of servicers’ policies. Additionally, we spoke with 

various mortgage industry participants, such as associations representing 

housing counselors, including those who directly work with LEP 

borrowers, and legal services attorneys. We also reviewed a national 

survey conducted by the National Housing Resource Center and a similar 

survey conducted by the California Reinvestment Coalition about servicer 

compliance with the new servicing standards resulting from a settlement 

involving 5 of the largest mortgage servicers and the federal and most 

state governments.2

 2

The consent orders entered into in the National Mortgage Settlement require servicers to 

provide borrowers with a single point of contact as well as improved communication, 

cease charging improper fees, and have adequate staffing levels and training, among

other things. United States v. Bank of America Corp., No. 1:12-CV-00361 (D.D.C. Apr. 4, 

2012). 

The national survey collected responses from 212 

housing counselors representing 28 states and the District of Columbia 

and the California survey received responses from 84 counselors and 
Appendix I: Objectives, Scope, and 

Methodology

Page 38 GAO-14-117 Troubled Asset Relief Program

legal service advocates.3

We conducted this performance audit from February 2013 through 

February 2014 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on the audit objectives.

We collected information about the survey 

methodology used and determined it was reliable for the purposes of 

reporting housing counselors’ views on the experiences of individuals 

they work with.

 3

There were two broad categories of questions in the surveys. First, with respect to each 

of the five servicers covered by the National Mortgage Settlement (NMS), survey 

respondents were asked how often they see each of a number of potential violations of 

NMS servicing standards. Second, respondents were asked how often they see various 

fair lending violations, such as disparate treatment of borrowers of color, borrowers with 

limited English proficiency, and borrowers with disabilities. See National Housing 

Resource Center, National Mortgage Settlement Servicing Standards and Noncompliance: 

Results of a National Housing Counselor Survey (Philadelphia, Pa, 2013) and California 

Reinvestment Coalition, Chasm Between Words and Deeds IX: Bank Violations Hurt 

Hardest Hit Communities (2013).
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 39 GAO-14-117 Troubled Asset Relief Program

This appendix provides a summary of our econometric analysis of the 

Home Affordable Modification Program (HAMP) outcomes for selected 

population groups—primarily focusing on the outcomes for protected 

groups under federal fair lending laws plus low-income groups and 

groups in substantially minority neighborhoods—at key stages of the 

HAMP process.1

The modification process under HAMP is highly structured, based on the 

standard waterfall in the HAMP guidelines, so servicers’ compliance with 

the required terms of the program may not necessarily warrant further 

investigation of differences in HAMP outcomes across certain groups. 

However, servicers have some discretion over certain actions and 

outcomes in the process, such as calculating borrowers’ income, 

determining the sufficiency of borrowers’ documentation and whether a 

borrower is in imminent danger of default, and developing their own 

policies to determine whether to offer principal forgiveness as part of the 

modification.2

 1

This econometric analysis focused on the protected classes covered by the Equal Credit 

Opportunity Act, 15 U.S.C. §§ 1691–1691f, and Fair Housing Act, 42 U.S.C. §§ 3601-

3619, (which we refer to throughout the report as “fair lending populations”)—women, nonHispanic African-Americans, Hispanics, non-Hispanic Asians, non-Hispanic American 

Indians or Alaska Natives, and Native Hawaiians or Other Pacific Islanders (12 C.F.R. § 

1002.13)—as well as low- and moderate-income groups, and persons living in 

substantially minority neighborhoods. We define substantially minority neighborhoods as 

census tracts where the proportion of all minority households (based on race and 

ethnicity) is at least 30 percent.

In addition, servicers may incorrectly apply program 

requirements. Further, even if standards were applied uniformly, it is 

2

We have previously found instances where servicers have variations in their application 

of HAMP guidelines. For example, in 2010 we reported that servicers have inconsistent 

practices on evaluating borrowers for imminent default because Treasury has not provided 

specific guidance on how to evaluate nonenterprise borrowers for imminent default. See 

GAO, Troubled Asset Relief Program: Home Affordable Modification Program Continues 

to Face Implementation Challenges, GAO-10-556T (Washington, D.C.: Mar. 25, 2010).

Servicers, and their employees, may also make errors in applying HAMP policies to 

modifications. In 2010 we reported that 5 of the 10 servicers we contacted reported at 

least a 20 percent error rate for income calculations. We noted that without accurate 

income calculations, which are key in determining the borrower’s debt-to-income (DTI) 

ratio, similarly situated borrowers applying for HAMP may be inequitably evaluated for the 

program and may be inappropriately deemed eligible or ineligible for HAMP. See GAO, 

Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably Implement 

Foreclosure Mitigation Programs, GAO-10-634 (Washington, D.C.: June 24, 2010). 

Treasury also assesses servicers on their income calculations and tracks the percentage 

of loans for which MHA-C’s income calculation differs from the servicer’s on a quarterly 

basis. In their July 2013 assessment results, Treasury noted an average income error rate 

of less than 2 percent, down from an average of about 7.5 percent in July 2012.

Appendix II: Description of GAO’s 

Econometric Analysis of HAMP

Outcomes for Fair Lending Groups
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 40 GAO-14-117 Troubled Asset Relief Program

possible that the application of HAMP and servicer-specific guidelines 

could be resulting in unintended adverse consequences for some 

population groups. We are unable to determine from the available HAMP 

data whether the statistically significant differences between the selected 

populations and their comparison populations identified in our analysis 

were the result of servicer discretion, servicer errors in the application or 

interpretation of HAMP guidelines or servicing protocols, differences 

among servicers’ policies, or the unintended consequences of HAMP 

guidelines or program design. Also, our analysis cannot account for some 

important factors, such as whether equivalent borrowers in these 

populations apply to HAMP at different rates or are more or less likely to 

receive assistance outside of HAMP. To the extent possible, we have 

controlled for several characteristics of the borrower and loan, as well as 

other factors which could confound potential differences in the outcomes 

experienced by the fair lending and other selected populations and their 

comparison populations in our analysis. Nonetheless, further investigation 

would be warranted to identify the source of the statistically significant 

differences identified by our analysis and what action, if any, would be 

appropriate to consider.

Borrowers applying for loan modifications under HAMP go through a 

selection process, according to the HAMP guidance. Key parts of the 

process include several steps at three key stages.

• Pretrial or application stage: At the application stage the servicer 

determines if the borrower is eligible for HAMP, including the 

requirement that the borrower must be either 60 days or more past 

due on mortgage payments prior to the modification, or in imminent 

danger of default.3 The borrower’s application may be denied because 

the application was ineligible or for reasons not related to eligibility, 

such as an incomplete request or if the modification would require 

excessive forbearance. Also, the borrower may decide not to accept 

an approved offer from the servicer.4

 3

The criteria also include the following: the mortgage is a first-lien loan originated prior to 

January 1, 2009, the borrower’s front-end housing DTI ratio exceeds 31 percent, and the 

unpaid principal balance for a one-unit dwelling does not exceed $729,750.

4

Reasons for trial failures that occurred prior to December 1, 2009, were reported only at 

the discretion of the participating servicer, therefore reason codes for trial denials and 

cancelations may not be available prior to December 1, 2009.
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 41 GAO-14-117 Troubled Asset Relief Program

• Trial modification stage: Once the borrower accepts the offer, they 

must make three timely monthly payments of the modified loan or the 

trial modification may be cancelled for nonpayment. Prior to June 

2010, a borrower could begin a trial based on stated information with 

data verification as a condition for conversion to permanent 

modification. For these borrowers, the trial may also be cancelled 

because the loan was subsequently determined to be ineligible. Trials 

may also be cancelled for reasons not related to eligibility such as an 

incomplete request and a negative net present value (NPV) result if 

the loan were to be modified. The modification becomes permanent if 

the borrower successfully completes the trial modification.

• Permanent modification stage: A permanent modification is cancelled 

if a borrower is unable to sustain the modification by redefaulting (i.e., 

the loan becoming 90 days or more delinquent).

If the borrower is eligible for HAMP, the servicer evaluates the loan using 

a standardized NPV test, which compares the net present value of cash 

flows with and without the modification. The HAMP Tier 1 modification 

must reduce the borrower’s first-lien mortgage payment to as close to 31 

percent housing debt-to-income (DTI) ratio using a sequence of steps—

the so-called standard modification waterfall. The steps include 

capitalizing accrued interest, reducing the interest rate on the loan, and 

extending the term or amortization period of the loan. Principal 

forbearance could be used as needed and principal forgiveness could be 

offered at any stage of the modification process.

The main data source for the study is Treasury’s HAMP data in its system 

of record, Investor Reporting/2 (IR/2) made available to government 

agencies. The data used are restricted to first-lien loans in the 50 states 

of the United States and in the District of Columbia. We excluded loans 

owned or guaranteed by the Federal Housing Administration (FHA) or 

Veterans Affairs (VA).5

 5

We also excluded loans owned or guaranteed by the enterprises that were modified 

under a pilot program on principal forgiveness (about 240 loans) conducted by Fannie 

Mae. Servicers of loans not insured by FHA, VA, and U.S. Department of Agriculture 

(USDA) undertake modifications based on HAMP guidelines, while servicers of loans 

owned or guaranteed by the enterprises use guidelines from its regulator, the Federal 

Housing Finance Agency (FHFA).

The time period analyzed is for HAMP 

applications and modifications from April 2009 through April 17, 2013.

Description of

Data Used
Appendix II: Description of GAO’s Econometric 

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Outcomes for Fair Lending Groups

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The HAMP data were supplemented with housing- and mortgage-related 

data from the 2010 Census from the Census Bureau: these data provided 

neighborhood-level characteristics such as the poverty rate, household 

education, mortgages with second liens, and ratio of rental values to 

home values (property risk) that could be associated with HAMP 

outcomes.6

The HAMP data include a variety of information on individual borrowers 

and other characteristics about the loan, property, investor, servicer, and 

loan modification terms, and the current status of the modification. Some 

of the data are specific to conditions before or after the modification, as 

well as at the loan origination. The data are generally available for the fair 

lending and our other selected populations and their comparison 

populations; however, data on borrower income are not available in the 

early stage of the HAMP process for borrowers whose applications were 

denied. In general, borrowers whose HAMP application did not advance 

to the NPV evaluation stage have more missing data because the 

information used for the NPV evaluation was not recorded in the 

database.7 The HAMP data are supplied by servicers that participate in 

the program. Servicers are required to report data when borrowers 

request a modification, during the trial period, when the trial is converted 

to a permanent modification, and to report the monthly performance of the 

permanent modification. The data used for the analysis consist of 4.7 

million loans, representing 92 percent of the HAMP applications as of 

April 17, 2013. See table 2 for details of the HAMP data used in our 

analysis, by phase of the HAMP process.

 6

The census data were obtained from Minnesota Population Center, National Historical 

Geographic Information System: Version 2.0 (University of Minnesota: Minneapolis, Minn.: 

2011).

7

About 11 percent of the loans not approved/not accepted contain NPV data.
Appendix II: Description of GAO’s Econometric 

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Outcomes for Fair Lending Groups

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Table 2: HAMP Data Used in the Analysis by Phase of the HAMP Process, April 2009 

to April 17, 2013

Pretrial or application stage 4,703,140

Completed applications 1,972,906

Denied applications 2,547,380

Unavailable outcome 182,854

Trial modification stage 1,972,906

Successful trial modifications within 6 months 1,090,881

Cancelled trial modifications 614,510

Unavailable outcome 267,515

Permanent modification stage 1,090,881

Ongoing or paid-off permanent modifications within 12 months 679,815 a

Cancelled permanent modifications 125,937 

Unavailable outcome 285,129

Source: GAO analysis of Treasury data.

Notes: The data are for first-lien HAMP loans in the 50 states of the United States and in the District 

of Columbia. They exclude loans owned or guaranteed by FHA or VA, and loans owned or 

guaranteed by Fannie Mae, a government-sponsored enterprise, that were modified under a pilot 

program on principal forgiveness (about 240 loans). The data are based on HAMP loan activity from 

April 2009 to April 17, 2013.

a

Paid-off loans comprised about 1 percent of the loans.

For every loan, the data included a descriptor of whether or not the loan 

completed the respective stage of the HAMP process, and, if it had not, 

the reason for the loan not reaching the next stage. We separated the 

denials of applications and cancellations of trial modifications due to 

reasons we determined to be related to the HAMP eligibility guidelines 

from the other reasons to provide additional insight into differences in 

outcomes for the groups analyzed.8

• In the application stage, the top three reasons for denial of

applications for modification that were related to eligibility guidelines, 

were (1) borrowers whose current DTI was less than 31 percent, (2) 

 8

Mayer and Piven used a similar approach of separating the denials of applications and 

cancellations of trial modifications due to ineligibility from the other reasons for denials and 

cancellations. See N. Mayer, and M. Piven, Experience of People of Color, Women, and 

Low-Income Homeowners in the Home Affordable Modification Program (Washington, 

D.C.: The Urban Institute, June 2012).
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 44 GAO-14-117 Troubled Asset Relief Program

ineligible mortgage, and (3) borrower was found to not be in imminent 

danger of default. The three top reasons for denial of applications for 

modification not related to eligibility guidelines were (1) incomplete 

request, (2) approved offer not accepted by borrower or withdrawn 

request, and (3) loan modification that would require excessive 

forbearance.

• In the trial modification stage, the three top reasons modifications 

were cancelled due to reasons we determined were related to 

eligibility guidelines were (1) borrowers whose current DTI was less 

than 31 percent, (2) ineligible mortgage, and (3) the property was not 

owner-occupied. The top reasons for trial modification cancellations 

not related to eligibility or payment default were (1) incomplete 

request, (2) approved offer not accepted by borrower or withdrawn 

request, (3) loans with negative NPV. We also analyzed trial 

modification cancellations due to payment default (loans that became 

30 days or more delinquent).

• Lastly, in the permanent modification stage, there was only one 

reason that modifications could be cancelled—redefault (loans that 

were 90 days or more delinquent).

Using information on where a property is located, we also include 

variables to control for potential differences in state laws, regulations, and 

programs that could affect the cost of foreclosure and treatment of 

delinquent borrowers.9

 9

Specifically, as done in previous studies, we include dummy variables for whether or not 

a state is a judicial foreclosure state, is a foreclosure nonrecourse state, has foreclosure 

rights of redemption, or has foreclosure prevention programs. We relied on previous 

studies to identify the classifications for each state. See J. Collins, K. Lam, and C. Herbert, 

“State Mortgage Foreclosure Policies & Lender Interventions: Impacts on Borrower 

Behavior in Default,” Journal of Policy Analysis and Management, vol. 30, no. 2 (2011): 

216-232, and James Orlando, “Comparison of State Laws on Mortgage Deficiencies and 

Redemption Periods,” OLR Research Report, No. 2010-R-0327 (Office of Legislative 

Research, Hartford, Conn.: Dec. 9, 2011), accessed December 22, 2012, 

We also constructed several mortgage- and 

housing-related variables of the neighborhoods for the loans in our 

analysis using data from the 2010 Census. Based on the census tract in 

which the property is located, we associated various variables to the 

HAMP loan-level data. The location-specific variables include 

characteristics such as minority concentration, poverty, age, foreign-born 

concentration, college education of household, and property risk 

characteristics.

http://www.cga.ct.gov/2010/rpt/2010-R-0327.htm. 
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 45 GAO-14-117 Troubled Asset Relief Program

We examined the availability of HAMP data for the selected population 

groups and their comparison populations for our analysis. The data show 

that missing data for race/ethnicity reduced from 54 percent in the early 

stage of the HAMP process when fewer data were reported by servicers 

to 43 percent in the later stage. Although the race/ethnicity of some 

borrowers was unavailable, the data suggest that the properties of 

borrowers with unavailable race/ethnicity were disproportionately located

in areas where racial minorities were predominant, particularly in the early 

stage of the HAMP process. The proportions of missing data were 

generally much lower for gender,10 income, and minority composition of 

the areas and their comparison populations.11 While previous studies that 

used the HAMP data acknowledge the limitations of missing data on the 

fair lending populations and their comparison populations, none of the 

studies indicated that the available data are not suitable for fair lending 

analysis.12

 10Gender is based on the (primary) borrower; co-borrower information is not used in this 

study because of data limitations.

Nonetheless, we took several steps to reduce the potential 

bias of missing data of the selected populations on our analysis. First, we 

included observations representing the missing data as another category, 

where possible, particularly since previous studies have indicated that 

11We classified the income groups as follows: low-income, if borrower’s income is less 

than 50 percent of Metropolitan Statistical Area (MSA) median household income; 

moderate-income, if income equals to or is greater than 50 percent and less than 80 

percent of MSA median household income; middle-income, if income equals to or is 

greater than 80 percent and less than 120 percent of MSA median household income; and 

high-income, if income greater than 120 percent of MSA median household income.

12See, for example, Mayer and Piven and CRC. Missing race/ethnicity data in HAMP are 

expected to be high, compared to the data collected under the Home Mortgage Disclosure 

Act of 1975 (HMDA)(12 U.S.C. §§ 2801-2810) and the act’s implementing regulation, 

Regulation C, which requires banks to collect data at origination. Information on the 

ethnicity, race, and sex of the borrower or applicant must be requested by the lender, 

including applications made entirely by telephone, mail, or Internet. 12 C.F.R. § 1003, 

App. B.I and II.A. If the information is not provided by the applicant and if the application is 

submitted in person, the lender is required to note the information on the basis of visual 

observation or surname. Id. at II.B. California Reinvestment Coalition (CRC), Race to the 

Bottom: An Analysis of HAMP Loan Modification Outcomes By Race and Ethnicity for 

California (July 2011).
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 46 GAO-14-117 Troubled Asset Relief Program

missing race/ethnicity data are not likely to be purely random.13

All the variables used are in categorical format (i.e., each variable is 

divided into sub-groups), except the modification types (capitalization, 

principal forbearance, and principal forgiveness), which are measured by 

the percent change of the loan balances.

Second, 

as part of our robustness checks, we also conducted the analysis 

excluding the observations representing the missing data to learn about 

its potential impact on our results. The results were similar for our key 

findings. And, third, we restricted the data to the period since December 

2009, when servicers were required to report fair lending-related data, 

and the proportions of missing data for the fair lending populations and 

their comparison populations decreased significantly.

14 There are fewer missing data 

of the variables in the later stage of HAMP since the data availability 

generally improved as the borrower moved through the modification 

process.

While our econometric analysis is consistent with previous studies that 

have analyzed differences between the certain selected populations and 

their comparison groups, it differs in several ways, including the data 

used, estimation technique, market participants, geographic coverage, 

 13For example, Dietrich and Huck, who argued that missing race data in HMDA are 

systemically lost and introduce bias and efficiency problems into fair lending examinations. 

J. Dietrich, Missing Race Data in HMDA and the Implications for the Monitoring of Fair 

Lending Compliance, Office of the Comptroller of the Currency, OCC Economics, Working 

Paper No. 2001-1 (Washington, D.C.: March 2011) and Huck, P, “Home mortgage lending 

by applicant race: Do HMDA figures provide a distorted picture?” Housing Policy Debate,

vol. 12, no. 4 (2001): 719-736.

14Using categorical format helps to avoid the exclusion of variables with missing 

observations.

Details of the 

Regression Analysis
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 47 GAO-14-117 Troubled Asset Relief Program

and time period analyzed.15

Mayer and Piven argued that, overall, the fair lending populations did not 

experience differential outcomes compared to their comparison 

populations. Thus, race, ethnicity, gender, or income has “very little”

impact on borrowers’ successful participation in HAMP as well as benefits 

of the program at every key stage of the program. Their results, 

nonetheless, suggest that the authors found some disparities for certain 

groups. For instance, non-Hispanic African-Americans, compared to 

whites, were more likely to redefault; Hispanics, compared to nonHispanics, were more likely to have their trial or permanent modifications 

cancelled; women were at least as successful as men with respect to 

HAMP outcomes analyzed; and low-income borrowers were less likely to 

We used a multivariate regression technique 

for all the HAMP outcomes, rather than tabular analysis, which allowed us 

to control for several potential confounding factors, including credit riskrelated factors, for which loan, borrower, property, and neighborhood 

characteristics serve as proxies. In particular, we included several 

variables that are used to capture the creditworthiness of borrowers in 

mortgage markets, such as delinquency status of borrowers before the 

modification, FICO credit scores at modification, the debt-to-income (DTI) 

ratios for both the front-end before modification and back-end after 

modification, and the LTV of the property at origination and at the time of 

the modification. We also used income cohorts for borrowers relative to 

incomes in their geographic areas (metropolitan statistical areas—MSAs) 

instead of nationally. Also, we measured default and redefault by the age 

of the loan since modification, which is important since default rates 

generally vary over time. Some of these are important differences 

between our study and Mayer and Piven, which is the closest of all the 

previous studies to ours in terms of the data used and issues that were 

addressed.

 15Previous studies that are relevant to ours because they analyzed fair lending using 

HAMP data include the following: CRC, National Community Reinvestment Coalition, 

HAMP Mortgage Modification Survey 2010 (Washington, D.C.: 2010), J. Karikari, 

“Race/Ethnicity, Gender and Redefault of HAMP Loan Modifications,” Paper presented at 

the annual meeting of the American Real Estate Society, Kohala Coast, HI, April 2013, 

Mayer and Piven, and, I. Voicu, V. Been, M. Weselcouch, and A. Tschirart, “Performance 

of HAMP Versus Non-HAMP Loan Modifications—Evidence from New York City,” New 

York University Law and Economics Working Papers, No. 288 (2012). Other relevant 

studies on loan modifications include S. Agarwal, S., G. Amromin, I. Ben-David, S. 

Chomsisengphet, T. Piskorski, and A. Seru, “Policy Intervention in Debt Renegotiation: 

Evidence from the Home Affordable Modification Program,” NBER Working Paper Series, 

No. 18311 (August 2012).
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 48 GAO-14-117 Troubled Asset Relief Program

redefault on their permanent modifications compared to higher income 

borrowers. Moreover, their study assessed overall HAMP program 

outcome results and did not analyze potential outcome differences and 

actions of individual servicers because the data set used for the 

analysis—the HAMP general public data file—did not contain variables 

that could be used to identify the servicer of the loan.

A study by the California Reinvestment Coalition of HAMP trial 

modifications in four MSAs in California found racial and ethnic disparities 

in the experiences of borrowers, which they argued was supported by 

their survey of housing counselors. The analysis involved tabulation 

rather than multivariate regression analysis and did not consider the 

effects of servicers due to the same limitation that the Mayer and Piven 

study faced with the lack of servicer identifying information in the data set 

used for the analysis.

The National Community Reinvestment Coalition conducted a study of 

distressed homeowners who sought assistance from NCRC’s Housing 

Counseling Network. The data were collected over a 2-month period in 

2010 from 29 organizations and 179 borrowers. The 179 respondents 

included both HAMP-eligible and noneligible borrowers. The findings 

related to fair lending included the following—servicers foreclosed on 

delinquent non-Hispanic African-American borrowers more quickly than 

on their counterpart whites or Hispanic borrowers, and HAMP-eligible 

white borrowers were almost 50 percent more likely to receive a 

modification than their non-Hispanic African-American counterparts. The 

study acknowledged the limitation that it did not use a nationally 

representative sample of distressed homeowners. Furthermore, similar to 

the CRC study, the analysis used tabulation rather than multivariate 

regression.

Voicu et al. analyzed redefault rates using data for New York City for 

HAMP and proprietary (non-HAMP) loan modifications from January 2008 

to November 2010. While they found that borrowers who received HAMP 

modifications were less likely to redefault compared to those that received 

proprietary modifications, the borrower’s race or ethnicity was not 

significantly correlated with the odds of redefault. The analysis covered a 

limited geographic market and did not include outcomes in the early stage 

of HAMP.
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

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Based on economic reasoning, data availability, and previous studies on 

loan modifications, we used a relatively flexible specification to estimate 

the outcome of a loan at certain stages of the HAMP process. The 

general regression specification for the models is:

y =Xβ + Zδ + ε.

• y is the HAMP outcome measure being assessed, such as whether a 

loan was eligible for trial modification compared to being denied due 

to DTI less than 31 percent, ineligible mortgage, or not in imminent 

default—a multinomial outcome; it could also be whether a loan 

remained current or redefaulted within 12 months of the permanent 

modification—a binomial outcome;

• X represents the fair lending and other selected populations—the 

income-related variables could not be used in the equations for the 

early stage of the HAMP process due to lack of data;

• Z represents a series of control variables, including other borrower 

characteristics, the loan, property, neighborhood, modification terms, 

geographic and time effects, as well as investor/lender and servicer 

effects;

• β and δ are the parameters to be estimated; and

• ε represents an error term.

We estimated the regression models using the logistic technique for 

pooled data for all the servicers.16

 16This technique is commonly used to estimate discrete choice models. The approach we 

use here is appropriate for our models of default of trial modifications and redefault of 

permanent modifications since we are primarily interested in the probability that a modified 

loan defaults or redefaults within a certain time period and not the hazard rate of the 

outcome (i.e., the probability that a loan defaults at a certain time if it has not already 

defaulted up to that time). See, for example, Agarwal et al., “Policy Intervention in Debt 

Renegotiation: Evidence from the Home Affordable Modification Program,”

We used probability weights that were 

based on the distribution of the outcomes at a stage of the HAMP process 

because the sample used for the regression, especially in the early stage 

of HAMP, differed from the full data due to missing observations for 

certain key variables, including the fair lending and other selected 

GAO-12-296, 

and Karikari, “Race/Ethnicity, Gender and Redefault of HAMP Loan Modifications” for 

similar approaches. Our results of redefault were unchanged when we extended the 

analysis from 12 to 24 months since the permanent modification.

Model

Econometric estimates
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 50 GAO-14-117 Troubled Asset Relief Program

populations and their comparison populations.17 Overall, the models are 

statistically significant, and most of the control variables are also 

significant at the 5 percent level or better and their effects (the direction of 

their impacts) are generally consistent with our expectations. We present 

below the results of the HAMP outcomes we analyzed for four of the large 

servicers with significant HAMP activity, where there are statistically 

significant differences between the fair lending and other selected 

populations and their comparison populations. Although our results show 

adverse as well as favorable outcomes for the selected populations 

compared to their comparison populations, we focus on cases where the 

outcomes were unfavorable to the selected populations because they are 

underrepresented in housing and mortgage markets. This approach is 

generally consistent with the focus of fair lending analysis on adverse

outcomes for protected groups. Also, we focus below on the effects 

where the predicted probability of an outcome for all borrowers is 10 

percent or more. Although this threshold has no strong statistical, 

economic, or legal justification, it helps us to focus on the more important 

findings, and is therefore appropriate for the diagnostic purpose of our 

study. The complete estimated probabilities are presented in tables 3

through 5.

We compared borrowers who are ineligible for trial modification—due to 

their debt-to-income (DTI) ratios being less than 31 percent, their 

mortgages were ineligible, or they were found to not be in imminent 

danger of default—to those eligible for trial modification. The estimates 

are based on a multinomial logistic regression of denial of application for 

these three reasons using pooled data for all servicers. The main results, 

from table 3, are:

 17In particular, the usable data for the regression analysis of denial of applications lacked 

several variables for applicants who were found to be ineligible and their loans were not 

evaluated for the NPV test. 

Pretrial or Application 

Stage Results

Denial of Application

Due to Ineligibility
Appendix II: Description of GAO’s Econometric 

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Outcomes for Fair Lending Groups

Page 51 GAO-14-117 Troubled Asset Relief Program

• Overall, the denial rate of borrowers because their DTI was 

determined to be less than 31 percent, was about 11 percent.

18

• We found statistically significant differences in the denial rates of trial 

modification between fair lending populations and their comparison 

populations due to the servicer’s determination that the borrower’s 

DTI was less than 31 percent.

• The difference in denial rates between the non-Hispanic AfricanAmerican borrowers and their comparison group of non-Hispanic 

whites was at least 13 percent higher for all four large servicers.

• The difference in denial rates between non-Hispanic American 

Indians, Alaska Natives, Native Hawaiians, and Other Pacific 

Islanders (collectively referred to as AIPI in this appendix) 

borrowers and their comparison group of non-Hispanic whites was 

at least 11 percent higher, for two of the large servicers we 

analyzed.

• Borrowers with unavailable information on their race/ethnicity 

(these borrowers have properties in substantially minority areas) 

or gender had at least 22 and 15 percent higher denial rates, 

respectively, than their comparison populations for all four large 

servicers.

• Borrowers in substantially minority areas had at least 3 percent 

higher denial rates than their comparison populations of borrowers 

in nonsubstantially minority areas for all four large servicers.

• On the other hand, non-Hispanic Asians, Hispanics, and females 

had generally lower denial rates than their comparison 

populations.

• Although we found some disparities between the selected populations 

and their comparison populations for denials due to servicers’

determination that borrowers had ineligible mortgages or were not in 

imminent danger of default, the results are not discussed since the 

overall denial rates are small.

 18The denial rates were about 2 percent for borrowers with ineligible mortgages or who 

were found to not be in imminent danger of default. 
Appendix II: Description of GAO’s Econometric 

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Table 3: Denial Rate and Percent Difference in Denial Rates between Selected Populations and their Comparison Populations 

for HAMP Applications Denied Due to a DTI Less Than 31 Percent 

DTI less than 31 percent

Average denial rate 11%

Servicer Servicer A Servicer B Servicer C Servicer D

Percent difference from comparison group

Race/ethnicity

Non-Hispanic white 0% a 0% 0% 0%

Non-Hispanic Asian -21% -21% -22% -22%

Non-Hispanic African-American 13% 13% 14% 14%

Hispanic -16% -18% -18% -18%

Non-Hispanic AIPI NA NA 11% 11%

Not available 22% b 26% 25% 26%

Gender

Male 0% a 0% 0% 0%

Female -10% -12% -11% -11%

Not available 15% b 21% 19% 19%

Substantially minority areac

Nonsubstantially minority 0% a 0% 0% 0%

Substantially minority 3% 3% 4% 4%

Source: GAO analysis of Treasury data.

Notes: AIPI: American Indian or Alaska Native (AIAN) and Native Hawaiian or Other Pacific Islander 

(NHPI). NA means not available because of lack of sufficient data for some of the denial outcomes.

The estimates are based on a probability-weighted multinomial logistic regression of denial of 

application due to DTI less than 31 percent, ineligible mortgage, or borrower found not to be in 

danger of imminent default compared to loans eligible for trial modification (the reference group). The 

predicted probabilities are based on the coefficient estimates from the multinomial logistic model and 

the mean values of the covariates, where the means are based on all the observations used in the 

estimation. All of the estimates in the table are significant at the 5 percent level or better, meaning 

that the estimated effects have a 5 percent or less chance of being random.

a

Comparison populations are shown as 0 since they are the base for percent change calculation.

b

Not available includes all other subgroups not listed in the category, including missing observations.

c

An area is substantially minority if the proportion of all minority households in a tract is at least 30 

percent.

We compared borrowers who were found to be eligible for trial 

modification but had their application denied for a number of reasons—

such as the servicer deemed their request incomplete, the borrower did 

not accept the approved offer from the servicer or withdrew their request 

for a modification, or the servicer determined that the loan modification 

would require excessive forbearance—to those approved for trial 

Denial of Application 

for Reasons Not Related 

to Eligibility
Appendix II: Description of GAO’s Econometric 

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Outcomes for Fair Lending Groups

Page 53 GAO-14-117 Troubled Asset Relief Program

modification.19

• Overall, the denial rate of borrowers due to an incomplete request is 

about 23 percent.

The estimates are based on a multinomial logistic 

regression of denial of application for these three reasons using pooled 

data for all servicers. There are no estimates for one of the four large 

servicers because of insufficient data for some of the outcomes. The main 

results, from table 4, are:

20 21

• We found disparities in denial rates where the reason was an 

incomplete request between fair lending populations and their 

comparison populations.

• The difference in denial rates between Hispanics from their 

comparison population of non-Hispanic whites was about 8 

percent higher for all three of the large servicers we analyzed.

• The difference in denial rates between non-Hispanic Asians and 

African-Americans from their comparison population of nonHispanic whites was at least 1 and 3 percent higher, respectively, 

for all three servicers we analyzed.

• The difference in denial rates for borrowers with unavailable 

information on their race/ethnicity was about 7 percent higher 

compared to non-Hispanic whites for the three large servicers we 

analyzed. Furthermore, we found in our analysis that these 

 19The data do not allow us to exclude those borrowers that withdrew their request for 

modification or did not accept an approved offer. It could be argued that not accepting an 

approved offer should not be regarded as a cancellation by the servicer. However, our 

purpose was to examine if there were disparities for this outcome since the nature of the 

offer could be a reason why the borrower did not accept it. According to HAMP guidelines, 

failure of a borrower to make the first trial period payment in a timely manner is considered 

nonacceptance of the trial period plan, which could imply a different motivation for this 

outcome. 

20A study, J. Karikari, “Why Homeowners’ documentation went missing under the Home 

Affordable Mortgage Program (HAMP)?: An analysis of strategic behavior of homeowners 

and servicers,” Journal of Housing Economics, vol. 22 (2013): 146-162, found that actions 

by both servicers and homeowners are consistent with missing documentation. Servicers 

have an incentive to “lose” the documentation of borrowers with low credit risks in order to 

“steer” them away from HAMP to their own (proprietary) less costly modification programs.

At the same time, borrowers with high risks have less incentives or are unable to provide 

complete documentation to support the reason for their ‘‘hardships,’’ as well as having 

difficulty in fulfilling the HAMP requirements. 

21The denial rates are 8 percent for borrowers not accepting their approved offers and 3 

percent for excessive forbearance.
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 54 GAO-14-117 Troubled Asset Relief Program

borrowers’ properties were located disproportionately in 

substantially minority areas. Also the difference in denial rates for 

borrowers with unavailable information on their gender was at 

least 24 percent higher for two of the three large servicers we 

analyzed.

• Borrowers in substantially minority areas had at about 1 percent 

higher denial rates than their comparison populations of borrowers 

in nonsubstantially minority areas for two of the three large 

servicers we analyzed.

• On the other hand, non-Hispanic AIPI and females were less likely 

to be denied than their comparison populations.

• Although we found some disparities between the fair lending and 

other selected populations and their comparison populations for 

denials due to borrowers not accepting their approved offers or for 

excessive forbearance, the results are not discussed since the overall 

denial rates are small.

Table 4: Denial Rate and Percent Difference in Denial Rates between Selected Populations and their Comparison Populations 

for HAMP Applications Denied Due to an Incomplete Request 

Incomplete request

Average denial rate 23%

Servicer Servicer A Servicer B Servicer C Servicer D

Percent difference from comparison group

Race/ethnicity

Non-Hispanic white 0% a NA 0% 0%

Non-Hispanic Asian 2% NA 1% 4%

Non-Hispanic African-American 4% NA 4% 3%

Hispanic 8% NA 8% 9%

Non-Hispanic AIPI NA NA NA -21%

Not available 8% b NA 7% 9%

Gender

Male 0% a NA 0% 0%

Female -1% NA -12% -15%

Not available 0% b NA 24% 36%

Substantially minority areac

Nonsubstantially minority 0% a NA 0% 0%

Substantially minority 0% NA 1% 1%

Source: GAO analysis of Treasury data.
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 55 GAO-14-117 Troubled Asset Relief Program

Notes: AIPI: American Indian or Alaska Native (AIAN) and Native Hawaiian or Other Pacific Islander 

(NHPI).

NA means not available because of lack of sufficient data for some of the denial outcomes. The 

estimates are based on a probability-weighted multinomial logistic regression of denial of application 

due to incomplete request (i.e., missing documentation), approved offer not accepted, or excessive 

forbearance compared to loans approved for trial modification (the reference group). The predicted 

probabilities are based on the coefficient estimates from the multinomial logistic model and the mean 

values of the covariates, where the means are based on all the observations used in the estimation.

All the estimates in the table are significant at the 5 percent level or better, meaning that the 

estimated effects have a 5 percent or less chance of being random.

a

Comparison populations are shown as 0 since they are the base for percent change calculation.

b

Not available includes all other subgroups not listed in the category, including missing observations.

c

An area is substantially minority if the proportion of all minority households in a tract is at least 30 

percent.

We compared borrowers whose trial modification was cancelled because 

their DTI was less than 31 percent, mortgage was ineligible, or property 

was not owner-occupied to those borrowers that were eligible for 

permanent modification. The estimates are based on a multinomial 

logistic regression of cancellation of trial modification for these three 

reasons using pooled data for all servicers.

Overall, the cancellation rate for borrowers with a DTI less than 31 

percent was about 0.8 percent. The cancellation rate was about 0.3 

percent for borrowers with ineligible mortgages and 0.3 percent for those 

with non owner-occupied properties. Although we found some differences 

between the fair lending and other selected populations and their 

comparison populations, the results are not discussed since the overall 

cancellation rates were small.

We compared borrowers whose trial modification were cancelled because 

the servicer determined their request was incomplete, the borrower did 

not accept the offer they received or withdrew their requests for trial 

modification, or the servicer determined that modifying the mortgage 

would result in a negative NPV. The estimates are based on a 

multinomial logistic regression of cancellation of trial modification for 

these three reasons using pooled data for all servicers.

Trial Modification 

Stage Results

Cancellation of Trial 

Modification for Ineligibility

Cancellation of Trial 

Modification for Reasons 

Not Related to Eligibility or 

Payment Default
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 56 GAO-14-117 Troubled Asset Relief Program

Overall, the cancellation rate for borrowers with incomplete requests was 

about 4 percent. The rate was about 3 percent for borrowers who did not 

accept their approved offer or withdrew their request and 0.3 percent for 

loans that would have a negative NPV if modified. Although we found 

some differences between the fair lending and other selected populations 

and their comparison populations, the results are not discussed since the 

overall cancellation rates were small.

We compared borrowers whose trial modification was cancelled for 

payment default (i.e., their loans became 30 days or more delinquent) 

within 6 months of the modification to those borrowers who were 

approved for permanent modification.

Overall, the estimated default rate of trial modifications was 4 percent.

Although we found differences between the fair lending and other 

selected populations and their comparison populations, the results are not 

discussed since the overall cancellation rate was small.

We compared borrowers who received permanent modification but 

redefaulted (i.e., their loans became 90 days or more delinquent) within 

12 months of the modification to those borrowers who remained current 

on their payments (or paid off the loan). The estimates are based on a 

binary logistic regression of redefault using pooled data for all the 

servicers, and including the three modification types—capitalization, 

principal forgiveness, and principal forbearance—as covariates. The main 

results, from table 5, are:

• Overall, the estimated redefault rate of permanent modifications was 

11 percent.

• The redefault rates differ by the modification type—capitalization, 

principal forgiveness, or principal forbearance. The use of principal 

forgiveness results in lower redefault rates compared to capitalization 

or principal forbearance. Capitalization increases the redefault rate by 

3 percentage points while it decreases by 3 percentage points with 

Cancellation of

Trial Modification for 

Payment Default

Permanent 

Modification Stage 

Results

Cancellation of Permanent 

Modification for Redefault
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 57 GAO-14-117 Troubled Asset Relief Program

principal forgiveness; principal forbearance lowers the redefault rate 

by 1 percentage point.

• We found disparities in redefault rates between certain fair lending 

populations and their comparison populations.

• The difference in redefault rates between non-Hispanic AfricanAmericans and non-Hispanic whites whose loans were serviced 

by any of the four large servicers was about 14 percent higher, 

irrespective of the modification type.

• The difference in redefault rates between non-Hispanic AIPI and 

non-Hispanic whites whose loans are serviced by any of three 

large servicers we analyzed was about 7 percent higher, 

irrespective of the modification type.

• The differences in redefault rates between borrowers with 

unavailable information on their race and income were about 5 

and 18 percent higher, respectively, compared to their comparison 

populations, irrespective of the modification type.

• However, non-Hispanic Asians, Hispanics, borrowers in 

substantially minority areas, and borrowers with low, moderate 

incomes, and middle-income, were less likely to redefault 

compared to their comparison populations.

Table 5: Redefault of HAMP Permanent Modification and Percent Difference in Redefault Rate between Selected Populations 

and Their Comparison Populations

Estimated redefault rate of permanent modification

Average 

redefault rate 11%

Modification 

type Capitalization Principal forgiveness Principal forbearance

Redefault rate With capitalization: 11% With forgiveness: 8% With forbearance: 10%

Without capitalization: 8% Without forgiveness: 11% Without forbearance: 11%

Servicer 

A

Servicer 

B

Servicer 

C

Servicer 

D

Servicer 

A

Servicer 

B

Servicer 

C

Servicer 

D

Servicer 

A

Servicer 

B

Servicer 

C

Servicer 

D

Percent difference from comparison group

Race/ethnicity

Non-Hispanic 

white

0% a 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Non-Hispanic 

Asian

-12% -13% -13% -12% -13% -13% -13% -12% -13% -13% -13% -12%
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 58 GAO-14-117 Troubled Asset Relief Program

Estimated redefault rate of permanent modification

Non-Hispanic 

AfricanAmerican

15% 15% 15% 14% 15% 15% 15% 14% 15% 15% 15% 14%

Hispanic -15% -15% -15% -14% -15% -16% -15% -15% -15% -15% -15% -14%

Non-Hispanic 

AIPI 

NA 7% 7% 7% NA 8% 7% 7% NA 7% 7% 7%

Not available 5% b 5% 5% 5% 5% 6% 5% 5% 5% 5% 5% 5%

Gender

Male 0% a 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Female 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Not available -2% b -2% -2% -2% -2% -2% -2% -2% -2% -2% -2% -2%

Substantially 

minority areac

Nonsubstantially 

minoritya

0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Substantially 

minority 

-5% -6% -5% -5% -6% -6% -6% -5% -5% -6% -6% -5%

Incomed

High-income 0% a 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Low-income -11% -12% -11% -11% -12% -12% -12% -11% -11% -12% -12% -11%

Moderateincome-6% -7% -6% -6% -7% -7% -7% -6% -6% -7% -7% -6%

Middle-income -3% -3% -3% -3% -3% -3% -3% -3% -3% -3% -3% -3%

Not available 20% b 20% 20% 18% 20% 21% 21% 19% 20% 21% 20% 19%

Source: GAO analysis of Treasury data.

Notes: AIPI: American Indian or Alaska Native (AIAN) and Native Hawaiian or Other Pacific Islander 

(NHPI). NA means not available because of lack of sufficient data for some of the denial outcomes.

The estimates for the modification types are based on a single probability-weighted logistic regression 

of redefault of permanent modifications (i.e., 90 or more days delinquent) within 12 months compared 

to loans that remained current or were paid off. The predicted probabilities are based on the 

coefficient estimates from the logistic model and the mean values based on all the observations used 

in the estimation. All the estimates in the table are significant at the 5 percent level or better, except 

the female variable, meaning that the estimated effects have a 5 percent or less chance of being 

random.

a

Comparison populations are shown as 0 since they are the base for percent change calculation.

b

Not available includes all other subgroups not listed in the category, including missing observations.

c

An area is substantially minority if the proportion of all minority households in a tract is at least 30 

percent.

d

The income groups are identified as follows: low-income, if borrower’s income is less than 50 percent 

of MSA median household income; moderate-income, if income equals to or is greater than 50 

percent and less than 80 percent of MSA median household income; middle-income, if income equals 

or is greater than 80 percent and less than 120 percent of MSA median household income; and highincome, if income is greater than 120 percent of MSA median household income.
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 59 GAO-14-117 Troubled Asset Relief Program

Furthermore, we included area incomes by groups.22 While the results 

were consistent with the key findings reported in tables 3 to 5, we also 

found that households in low-moderate income areas were more likely to 

be denied for DTI less than 31 percent and those in middle-income areas 

were more likely to be denied for incomplete request compared to their 

comparison populations of households in high income areas. Also 

households in areas with unavailable median incomes were more likely to 

re-default on their permanent modifications compared to their comparison 

population.

We took several steps to check these regression models for robustness, 

particularly for the key findings on denials of HAMP applications due to a 

servicer’s determination that the borrower’s DTI was less than 31 percent, 

cancellation of trial modification due to the servicer determining the 

request was incomplete, and for redefaults of permanent modification. 

Specifically, we did the following:

• estimated the outcomes separately for each of the four large 

servicers;

• estimated the models excluding the observations for the missing fair 

lending populations;

• estimated the model comparing Hispanics to non-Hispanics (the 

majority comparison group);

• restricted the data to the period since December 2009 when servicers 

were required to collect fair lending related data;

• for the estimation of redefault rates of permanent modifications we 

used loans that had aged 24 months since the permanent 

modification; and

• estimated the models without probability weights.

 22The area income groups are identified as follows: low-income area, if the tract-level 

household median income is less than 50 percent of MSA-level household median 

income; moderate-income area, if the tract-level household income equals to or is greater 

than 50 percent and less than 80 percent of MSA-level household median income; middleincome area, if tract-level household median income equals or is greater than 80 percent 

and less than 120 percent of MSA-level household median income; high-income area, if 

tract-level household median income is greater than 120 percent of MSA-level household 

median income, and not available, if tract-level or MSA-level household median income is 

unavailable.

Results of Additional 

Analysis on 

Household Area 

Incomes

Robustness Checks 

of Results
Appendix II: Description of GAO’s Econometric 

Analysis of HAMP

Outcomes for Fair Lending Groups

Page 60 GAO-14-117 Troubled Asset Relief Program

These checks were consistent with the reported key findings of 

differences between the fair lending and other selected populations and 

their comparison populations. Nonetheless, there are limitations of this 

study, including limited data on the selected populations, the lack of 

certain variables that could help capture the credit risks of borrowers and 

the loans such as the wealth of the borrowers and their knowledge of the 

loan modification process, and, in particular, if borrowers have accessed 

housing counseling services. Also, as noted, this analysis concerns 

potential disparate outcomes for some populations and does not mean to

imply disparate treatment by some servicers or that borrowers 

experienced disparate impact in violation of fair lending laws, so the 

findings in this study should be interpreted cautiously and further analysis 

may be appropriate.
Appendix III: Comments from the Department 

of the Treasury

Page 61 GAO-14-117 Troubled Asset Relief Program

Appendix III: Comments from the 

Department of the Treasury
Appendix III: Comments from the Department 

of the Treasury

Page 62 GAO-14-117 Troubled Asset Relief Program
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 63 GAO-14-117 Troubled Asset Relief Program

Mathew J. Scire, (202) 512-8678 or sciremj@gao.gov

In addition to the contact named above, Harry Medina (Assistant 

Director), Bethany Benitez, Emily Chalmers, William R. Chatlos, Lynda 

Downing, John Karikari, Anar Ladhani, John Lord, Thomas J. McCool, 

Susan Offutt, Jena Sinkfield, Anne Y. Sit-Williams, Jim Vitarello, and 

Heneng Yu made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Agarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, T. Piskorski, 

A. Seru. “Policy Intervention in Debt Renegotiation: Evidence from the 

Home Affordable Modification Program.” NBER Working Paper Series, 

No. 18311, August 2012.

Berkovec, J., G. Canner, S. Gabriel, and T. Hannan. “Race, Redlining, 

and Residential Mortgage Loan Performance.” Journal of Real Estate 

Finance and Economics, vol. 9, no. 3 (1994): 263-294.

California Reinvestment Coalition (CRC), Race to the Bottom: 

An Analysis of HAMP Loan Modification Outcomes By Race and Ethnicity 

for California (July 2011).

Cheng, P., Z. Lin, and Y. Liu. “Do Women Pay More for Mortgages?”

Journal of Real Estate Finance and Economics, vol. 43, no. 4 (2011): 

423-440.

Collins, J., K. Lam, and C. Herbert. “State Mortgage Foreclosure Policies 

& Lender Interventions: Impacts on Borrower Behavior in Default.”

Journal of Policy Analysis and Management, vol. 30, no. 2 (2011): 216-

232.

Dietrich, J., Missing Race Data in HMDA and the Implications for the 

Monitoring of Fair Lending Compliance., Office of the Comptroller of the 

Currency, OCC Economics, Working Paper No. 2001-1 (March 2011) .

GAO. Foreclosure Mitigation: Agencies Could Improve Effectiveness of 

Federal Efforts with Additional Data Collection and Analysis. 

GAO-12-296. Washington, D.C.: June 28, 2012.

GAO. Troubled Asset Relief Program: Further Actions Needed to Fully 

and Equitably Implement Foreclosure Mitigation Programs. GAO-10-634. 

Washington, D.C.: June 24, 2010.

GAO. Troubled Asset Relief Program: Home Affordable Modification 

Program Continues to Face Implementation Challenges. 

GAO-10-556T.Washington, D.C.: March 25, 2010.

Huck, P. “Home mortgage lending by applicant race: Do HMDA figures

provide a distorted picture?” Housing Policy Debate, vol. 12, no. 4 (2001): 

719-736.

Selected Bibliography
Karikari, J. “Why Homeowners’ documentation went missing under the 

Home Affordable Mortgage Program (HAMP)?: An analysis of strategic 

behavior of homeowners and servicers.” Journal of Housing Economics, 

vol. 22 (2013a): 146-162.

Karikari, J. “Race/Ethnicity, Gender and Redefault of HAMP Loan 

Modifications,” Paper presented at the annual meeting of the American 

Real Estate Society, Kohala Coast, HI, April 2013.

Mayer, N. and M. Piven, Experience of People of Color, Women, and 

Low-Income Homeowners in the Home Affordable Modification Program.

The Urban Institute, Washington, D.C., June 2012.

National Community Reinvestment Coalition. HAMP Mortgage 

Modification Survey 2010 (Washington, D.C: 2010).

Orlando, James. “Comparison of State Laws on Mortgage Deficiencies 

and Redemption Periods.” OLR Research Report, No. 2010-R-0327. 

Hartford, Conn.: Office of Legislative Research, December 9, 2011. 

Accessed December 22, 2012. http://www.cga.ct.gov/2010/rpt/2010-R0327.htm.

Voicu, I., V. Been, M. Weselcouch, and A. Tschirart. “Performance of 

HAMP Versus Non-HAMP Loan Modifications—Evidence from New York 

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(2012).

Zhang, Y. “Fair Lending Analysis of Mortgage Pricing: Does Underwriting 

Matter?” Journal of Real Estate Finance and Economics, vol. 46, no. 1

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