Troubled Asset Relief Program: Further Actions Needed to Enhance Assessments and Transparency of Housing Programs
Published: 2012-07-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: More than 3 years have passed since Treasury made up to $50 billion available to help struggling homeowners through the MHA program, and foreclosure rates remain near historically high levels. Further, more than 2 years after Treasury set up the Hardest Hit Fund to help homeowners in high-unemployment states, much of the money remains unspent. The Emergency Economic Stabilization Act of 2008, which authorized Treasury to create TARP, requires GAO to report every 60 days on TARP activities. This 60-day report examines (1) the steps Treasury took to design and implement recent changes to MHA, and (2) Treasurys monitoring and oversight of states implementation of Hardest Hit Fund programs. To address these questions, GAO analyzed data and interviewed officials from Treasury, five selected Hardest Hit Fund states, and five large MHA servicers.
section_title: What GAO Found
paragraphs: The Department of the Treasury announced changes in January 2012 to its Making Home Affordable (MHA) programs, which are funded by the Troubled Asset Relief Program (TARP), to address barriers to borrower participation. These changes include expanding eligibility criteria and extending application deadlines through 2013. Not enough time has passed to assess the extent to which these changes will increase participation. Several large servicers were not able to fully implement the changes by the June 1, 2012, effective date, and servicers that GAO queried had mixed views about possible effects. Treasury consulted with servicers, investors, and federal banking regulators before implementing the changes but did not perform a comprehensive risk assessment for the changes or develop meaningful performance measures in accordance with standards for internal control. As a result, Treasury may have difficulty mitigating potential risks, such as an increase in redefaults or the misuse of funds; effectively assessing program outcomes; or holding servicers accountable.
After a slow start, states increased their spending on borrower assistance under the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund). The assistance provided as of March 2012 totaled about 5 percent of the $7.6 billion allocation. All but one state that GAO spoke to anticipated spending their full allocations, and all noted that with Treasurys help they had dealt with challenges related to staffing, infrastructure, servicer participation, borrower outreach, and program implementation. Treasury officials said that they expected initial administrative spending to be high as states established their programs, and 27 percent of states total spending was for administrative expenses as of March 2012. Treasury officials stated that states would be required to report publicly on administrative costs beginning with the third quarter of 2012. Treasury has been monitoring states performance and compliance but has not reported consolidated performance and financial data (including administrative expenses) for the programs. The lack of consolidated reporting of performance and financial data limits transparency and efforts to ensure that resources are used effectively to achieve program goals.
section_title: What GAO Recommends
paragraphs: Treasury should (1) expeditiously assess the risks associated with the recent changes to MHA and develop activity-level performance measures for each program, and (2) consolidate the states Hardest Hit Fund performance and financial data, including administrative expenses, into a single public report. Treasury neither agreed nor disagreed with the recommendations but took exception to the finding that it did not conduct a comprehensive risk assessment prior to implementing the MHA program changes. In response, GAO provided examples of key components of a comprehensive risk assessment that Treasury had not addressed.

section_title: Letter
paragraphs: Since the Home Affordable Modification Program (HAMP) was first  announced in February 2009, concerns have been raised that the  program has not reached the expected number of homeowners. HAMP  was created after the Emergency Economic Stabilization Act of 2008  (EESA) authorized the Department of the Treasury to establish the $700  billion Troubled Asset Relief Program (TARP), which was intended to,  among other things, preserve homeownership and protect home values.  Under HAMP, Treasury initially indicated that up to $50 billion would be  used to help 3 to 4 million struggling homeowners avoid potential  foreclosure. HAMP is the key component of Treasury’s Making Home  Affordable (MHA) program and provides servicers and mortgage  holders/investors with incentive payments to offer modifications on first- lien mortgages to reduce borrowers’ monthly mortgage payments to  affordable levels and thus help borrowers avoid foreclosure and keep  their homes.
In three prior reports, we looked at the implementation of the HAMP first- lien modification program and other MHA programs, noting that Treasury  faced challenges in implementing them and making several  recommendations intended to address these challenges. In addition, the  Special Inspector General for TARP (SIGTARP) and the Congressional  Oversight Panel have issued several reports containing various  recommendations to Treasury intended to improve the transparency,  accountability, and effectiveness of MHA.
Questions continue to be raised about the extent to which the HAMP first- lien program has effectively reached struggling homeowners and reduced  avoidable foreclosures. In January 2012, Treasury announced several  enhancements to its MHA program intended to help additional  homeowners stay in their homes and strengthen hard-hit communities. It  expanded HAMP to include mandatory assessments of borrowers for  alternate modifications with relaxed eligibility requirements, extended  MHA programs through 2013, and increased incentives for certain  subprograms. Questions have also been raised about the Housing  Finance Agency Innovation Fund for Hardest Hit Housing Markets  (Hardest Hit Fund), a $7.6 billion TARP-funded initiative that provides  funding to selected states to develop innovative solutions to housing  market difficulties in their states.
As required by EESA, we have provided oversight of TARP activities  since they began in 2008 through reports issued every 60 days. This 60- day report examines (1) steps Treasury has taken to design and  implement recent changes to the Making Home Affordable programs and  (2) Treasury’s monitoring and oversight of state housing finance  agencies’ (HFA) implementation of the Hardest Hit Fund. In addition,  appendix II provides an update on the status of recommendations made  to Treasury in previous reports related to TARP-funded housing  programs.
To address these questions, we reviewed MHA and Hardest Hit Fund  program documentation that Treasury issued, including supplemental  directives for the recent MHA program changes, and interviewed officials  from Treasury and the Federal Housing Finance Agency (FHFA). We  obtained information from and spoke with five of the largest MHA  servicers, which collectively represent about 68 percent of the TARP  funds allocated to servicers participating in the program. We interviewed  and obtained information from officials in five states that are administering  Hardest Hit Fund programs. To select these states, we considered factors  such as the size of the funding allocation and geographic location.  Further, we spoke with various mortgage industry participants, including  associations representing servicers, housing counselors, and legal  services attorneys. We analyzed loan-level data from Treasury’s HAMP  database, which included data reported by servicers on borrowers  evaluated for HAMP participation through March 2012. This analysis  allowed us to identify the characteristics of borrowers who received  modifications under HAMP. We coordinated our work with SIGTARP. For  additional information on our scope and methodology, see appendix I.
We conducted this performance audit from February 2012 through July  2012 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.
subsections: section_title: Background
paragraphs: Treasury’s Office of Homeownership Preservation within the Office of  Financial Stability (OFS), which administers TARP, addresses the issues  of preventing avoidable foreclosures and preserving homeownership.  Treasury established three initiatives funded under TARP to address  these issues: MHA, the Hardest Hit Fund, and, in conjunction with the  Department of Housing and Urban Development’s (HUD) Federal  Housing Administration (FHA), the FHA Refinance of Borrowers in  Negative Equity Positions (FHA Short Refinance).
Treasury allocated $29.9 billion in TARP funds to MHA to be used to  encourage the modification of eligible mortgages that financial institutions  owned and held in their portfolios (whole loans) or that they serviced for  private-label securitization trusts, as well as to provide other relief to   Only financial institutions that voluntarily signed a  distressed borrowers. Commitment to Purchase Financial Instrument and Servicer Participation  Agreement with respect to loans not owned or guaranteed by the  government-sponsored enterprises Fannie Mae or Freddie Mac (the  enterprises) on or before October 3, 2010, are eligible to receive TARP  financial incentives under the MHA program. MHA was initially set to end  December 31, 2012, but Treasury recently extended the MHA application  deadline by 1 year to December 31, 2013. In addition to the original  HAMP first-lien modifications, MHA TARP-funded efforts include the  Principal Reduction Alternative (PRA), the Second Lien Modification  Program (2MP), the Home Affordable Unemployment Program, the Home  Affordable Foreclosure Alternatives program, Home Price Decline  Protection incentives, and several other incentive programs.
The largest component of MHA is the HAMP first-lien modification  program, which was intended to help eligible homeowners stay in their  homes and avoid potential foreclosure. HAMP first-lien modifications are  available to qualified borrowers who took out their 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. If the NPV of the expected  investor 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. In addition, Treasury 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.
In early 2012, Treasury announced a second evaluation for a modification  under HAMP, at which point the original HAMP first-lien modification  structure was redesignated as HAMP Tier 1, and the new evaluation was  named HAMP Tier 2. HAMP Tier 2 became available to borrowers June  1, 2012. Generally, HAMP Tier 1 is available to qualified borrowers who  occupy their properties as their primary residences 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. In contrast, HAMP Tier 2 is available for either owner-occupied properties or  rental properties, and borrowers’ monthly mortgage payments prior to  modification do not have to exceed a specified threshold. Mortgages  secured by owner-occupied properties must be in imminent default or be  two or more payments delinquent to be considered for HAMP Tier 1 or  HAMP Tier 2. For mortgages secured by rental properties, only those that  are two or more payments delinquent are eligible.
The HAMP Tier 1 standard modification waterfall provides servicers with  a sequential modification process to reduce mortgage payments to as  close to 31 percent of gross monthly income as possible. Servicers must  first capitalize accrued interest and certain expenses paid to third parties  and add this amount to the loan balance (principal) amount. Next, the  interest rate must be reduced in increments of one-eighth of 1 percent  until the 31-percent DTI target is reached, but servicers are not required  to reduce interest rates below 2 percent. If the interest rate reduction  does not result in a DTI ratio of 31 percent, servicers must then extend  the maturity and/or amortization period of the loan in 1-month increments  up to 40 years. Finally, if the target DTI ratio is still not reached, the  servicer must forbear, or defer, principal until the payment is reduced to  the 31-percent target. Servicers may also forgive mortgage principal at  any step of the process to achieve the target monthly payment ratio of 31  percent, provided that the investor allows principal reduction.
In contrast, the HAMP Tier 2 modification provides servicers with a  uniform set of actions that must result in a reduction in the principal and  interest payments of at least 10 percent and a postmodification DTI that is  greater than or equal to 25 percent but less than or equal to 42 percent in  order for the modification to proceed. The NPV model applies the  following steps, using information provided by the servicer to evaluate  borrowers for HAMP Tier 2: accrued interest and certain expenses paid to third parties are  capitalized (added to the principal amount);  the interest rate is adjusted to the weekly Freddie Mac Primary  Mortgage Market Survey Rate, rounded up to the nearest 0.125  percent, plus a risk adjustment established by Treasury (initially 50  basis points);  the mortgage term is extended to 480 months and reamortized; and,  if the premodification current loan-to-value (LTV) ratio is greater than  115 percent, principal forbearance is applied in the amount of the  lesser of 30 percent of the unpaid principal balance (including  capitalized amounts) or the amount required to create a  postmodification LTV ratio of 115 percent.
Borrowers must also 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 under both HAMP Tier 1 and HAMP Tier 2.  According to Treasury data, about 880,000 trial modifications had been  started under the TARP-supported (nonenterprise) portion of HAMP Tier  1 through April 2012. Of these, approximately 493,000 were converted to  permanent modifications, 347,000 had been canceled, and 40,000  remained in active trial periods. Of the HAMP Tier 1 permanent  modifications started, approximately 384,000 remained active, and  109,000 had been canceled.
Treasury has entered into agreements to have Fannie Mae and Freddie  Mac 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 servicers and  executing participation agreements with and collecting data from them, as  well as providing ongoing servicer training and support. Within Freddie  Mac, the MHA-Compliance team is the MHA compliance agent and is  responsible for assessing servicers’ compliance with nonenterprise  program guidelines, including conducting onsite and remote servicer loan  file reviews and audits.
subsections: section_title: Principal Reduction Alternative
paragraphs: 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  tripled the PRA incentive amounts offered to mortgage holders/investors  for permanent modifications that had trial period effective dates on or  after March 1, 2012.
At their own discretion, servicers may also offer modifications under PRA to borrowers  with LTV ratios that are less than 115 percent. However, PRA incentives are provided only  for the portion of the principal reduction that brings the LTV no lower than 105 percent. No  PRA incentives are provided for the portion of the principal reduction that reduces the LTV  below 105 percent.
Treasury had paid about $42 million in PRA incentives to participating  mortgage holders/investors.
section_title: Second Lien Modification Program
paragraphs: According to Treasury, 2MP is designed to work in tandem with HAMP  modifications to provide a comprehensive solution to help borrowers  afford their total mortgage payments. A participating servicer of a second  lien on a property with a first lien that receives a HAMP modification must  offer to modify the borrower’s second lien, accept a lump sum payment  from Treasury to fully extinguish it, or accept a lump sum payment from  Treasury to partially extinguish it and modify the remaining portion. Under  2MP, servicers are required to take modification actions in the following  order: capitalize accrued interest and other past due amounts; reduce the  interest rate to as low as 1 percent for 5 years (when the interest rate will  reset at the rate of the HAMP-modified first lien); extend the term to at  least match the HAMP-modified first lien; and forbear or forgive principal  in at least the same proportion as the forbearance or forgiveness on the  HAMP-modified first lien, although servicers may choose to forbear or  forgive more than that amount. According to Treasury, nearly 60,000 2MP  modifications were active as of April 2012, in addition to more than  17,000 second liens that were fully extinguished. As it does with PRA,  Treasury provides incentive payments to the second-lien mortgage  holders in the form of a percentage of each dollar of principal reduction on  the second lien. Treasury doubled the incentive payments offered to  second-lien mortgage holders for 2MP permanent modifications that  included principal reduction and had an effective date on or after June 1,  2012.
section_title: Hardest Hit Fund
paragraphs: Treasury established the Hardest Hit Fund program in February 2010, 1  year after announcing MHA. The goal of the program was to fund  innovative measures developed by state HFAs and approved by Treasury  to help borrowers in states hit hardest by the aftermath of the housing  bubble. The Hardest Hit Fund program was originally announced as a  $1.5 billion effort to reach borrowers in five states. Treasury subsequently  provided three additional rounds of funding to bring the total allocation to  $7.6 billion across 18 states and the District of Columbia. The 18 states  are Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana,  Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina,  Ohio, Oregon, Rhode Island, South Carolina, and Tennessee. In a recent  report examining the implementation of the Hardest Hit Fund program,  SIGTARP found that Treasury consistently applied its criteria in selecting  states to participate but that the selections in the second round of funding  were not transparent.
section_title: Treasury Has Not Fully Assessed the Risks of or Developed Performance Measures for the Recent Changes to MHA Programs
paragraphs: Treasury designed the recently announced changes to its MHA programs  to address barriers to participation it identified in the existing programs,  but the changes may have a limited impact on increasing MHA  participation rates. Because most of the changes became effective on  June 1, 2012, we could not determine the extent to which they would in  fact increase MHA participation rates. The servicers that we queried had  mixed views on the likely effectiveness of these changes on increasing  MHA participation. Also, Treasury reported that several servicers were  not able to fully implement the HAMP Tier 2 changes by the effective  date, including two large servicers that Treasury indicated would need  several additional months to fully implement them. Additionally, we found  that Treasury had not fully assessed or estimated the number of  borrowers who would receive assistance as a result of these changes or  the costs that would be incurred. Lastly, Treasury has not completed  program-specific risk assessments to mitigate potential risks or developed  performance measures to hold itself and servicers accountable for the  MHA changes.
subsections: section_title: Recent Changes Designed to Boost Participation Rates Could Have a Limited Effect
paragraphs: Treasury officials told us that the recent changes to MHA—expanding  HAMP eligibility, extending the program deadline for all MHA programs,  and increasing incentives for PRA and 2MP—were designed to address  several issues identified in Treasury’s analyses of the existing MHA  programs. However, the likely effect of these changes on participation is  not yet known and could be limited, according to servicers that we  contacted.modifications have generally been in decline since early 2010 and in April   The numbers of newly started trial and permanent  2012 reached their lowest levels since the HAMP first-lien program began  (see fig. 1). One factor contributing to the initial decline was that as of  June 1, 2010, Treasury required servicers to verify borrowers’ income  before offering them a trial modification. In addition, according to Treasury  officials, the pool of borrowers potentially eligible for HAMP has been  shrinking, falling from an estimated 1.4 million in December 2010 to less  than 900,000 12 months later.
Treasury officials said that the changes in eligibility were made on the  basis of an analysis of delinquent loans held by borrowers who had not  been assisted by HAMP and might not receive assistance through non- MHA programs. Specifically, Treasury found that the 31-percent DTI  threshold for HAMP Tier 1 was excluding a significant number of  borrowers who could have experienced financial hardships. Other  borrowers were being excluded because the modification steps required  to bring their DTI down to 31 percent resulted in excessive forbearance or  made the NPV result negative. These factors contributed to Treasury’s  adopting the flexible postmodification DTI under HAMP Tier 2. In addition,  Treasury found that tenants were being displaced because the property  owners could not obtain loan modifications for properties that were not  the owners’ primary residence. The large number of non-owner-occupied  properties with delinquent mortgages was another factor in Treasury’s  decision to allow modifications on certain rental properties. Treasury  officials told us that other borrowers could not be assisted under HAMP  for a variety of reasons—for example, because their servicers did not  participate in the HAMP program or their loans fell within the jurisdiction  of FHA or Department of Veterans Affairs (VA) loan assistance programs.  Treasury decided to keep the maximum loan limit and the origination date  cutoff because these exclusions did not affect the target population of  borrowers Treasury was trying to reach.
Treasury officials said that their analysis suggested that increasing  incentives for PRA and 2MP could also increase investor participation in  these programs. The officials told us that they thought the rate of  participation in PRA should be higher and that they wanted to encourage  principal reduction for deeply underwater borrowers with a hardship  because reducing principal would make for a more sustainable  modification. Our analysis of Treasury’s HAMP data indicates that after  PRA went into effect in October 2010, about 32 percent of nonenterprise  trial modifications included principal reduction under the program as of  April 2012. On a cumulative basis, the proportion of HAMP permanent  modifications that include principal reduction under PRA has increased  from less than 1 percent in May 2011 to nearly 6 percent in April 2012  (see fig. 2). Officials told us that PRA participation had also resulted in  additional 2MP participation because servicers must make a  corresponding principal reduction on any second-lien mortgage when the  corresponding first-lien mortgage is reduced.
Treasury officials also told us that they had found that increasing investor  incentive levels would change a number of NPV evaluation results from  negative to positive. Further, by increasing incentives officials hope to  encourage greater participation among investors that already participate  in PRA and those that do not but might be encouraged to participate.  Treasury officials said that their discussions with servicers and investor  groups indicated that the previous incentive levels were not high enough  to entice all investors to participate in PRA. The expansion of HAMP  eligibility to include HAMP Tier 2 also means that additional second-lien  mortgages would be eligible for modification under 2MP. By increasing  2MP incentives, officials stated that Treasury intended to encourage  continued participation going forward for these loans and to give servicers  an incentive to increase write-downs, including full extinguishments on  second-lien mortgages.
Continued fragility in the housing market prompted Treasury to extend the  MHA program application deadline another year. While there has been  some improvement in the housing market, house prices remain near  postbubble lows. In addition, default levels, which are associated with  high unemployment and underemployment, have declined from their peak  levels but remain high by historical standards. Further, Treasury projected  that total spending for existing HAMP Tier 1 modifications and other MHA  interventions would be approximately $9 billion of the $29.9 billion  allocated by the time the program ended in December 2017. Treasury  officials noted that this amount would increase as additional modifications  were completed.
Treasury has not identified the number of modifications that may be made  under HAMP Tier 2 or the potential costs of the changes to MHA.  According to Treasury officials, a number of external factors that could  have an impact on these calculations remain uncertain, including the  implementation of the national mortgage settlement involving the federal  government, state attorneys general, and the five largest servicers; the  participation of Fannie Mae and Freddie Mac in some of the recent MHA  program changes; and the ability of the participating servicers to  implement HAMP Tier 2 changes. Before the final program guidance was  issued, Treasury’s preliminary estimate was that the changes could result  in an additional 1 million borrowers potentially becoming eligible for MHA  programs. Treasury has not provided a revised estimate that reflects the  final changes, although Treasury officials stated that it would be lower  due to the impact of narrowing the DTI range from what had initially been  considered and other factors.
When we asked five servicers how they thought the changes might affect  their loan modification volumes, their responses varied. One servicer  anticipated a 15- to 18-percent increase in HAMP modifications because  of the expanded DTI range, and another servicer stated that 50 percent of  the borrowers it had been unable to help under HAMP Tier 1 had not met  the 31-percent DTI restriction, so the changes could potentially increase  its HAMP modifications. However, some servicers also indicated that  HAMP Tier 2 might not reach many additional borrowers because the  HAMP modifications would likely offset proprietary modifications that  would have otherwise been made to those borrowers’ loans. Of the two  servicers that expected the number of their modifications on rental  properties to increase, one servicer stated that it had a large population of  delinquent loans on rental properties but did know how many would meet  the other eligibility requirements for a HAMP modification. The other  servicer expected the changes would increase its HAMP modification  volume but had not projected the magnitude. Another servicer said that it  did not have enough information to project the number of loans it might  make under HAMP Tier 2. One servicer stated that increased PRA  incentives should increase HAMP participation, and several also  mentioned that the national mortgage settlement would have an impact,  because part of the settlement required servicers to provide principal  reduction. However, two of the servicers we contacted did not anticipate  any increase in their HAMP participation levels from the increased  incentives. One servicer indicated that its portfolio loans would not be  affected by these new investor incentives but that more of the loans it  serviced for other mortgage holders/investors might be modified.  Specifically, about 15 percent of its mortgage holders/investors had opted  out of PRA but had told this servicer that they might be willing to  reconsider in response to the increased incentives, especially for loans  that would qualify for the highest incentive on the principal reduction  (LTVs greater than or equal to 105 percent but less than 115 percent).
Given the currently low participation rates and the reasons for them, as  well as the mixed expectations of the servicers we interviewed, it is not  yet possible to determine whether the changes will significantly increase  the number of troubled borrowers assisted under MHA. Nevertheless,  Treasury’s steps may further support the still-fragile housing market and  help reduce the number of potential foreclosures.
section_title: Some Servicers Were Not Ready to Implement the Changes
paragraphs: Treasury has taken several steps to help servicers meet the program  requirements for the recent changes to MHA programs, but challenges  could affect some servicers’ capacity to effectively implement the new  program changes beyond the June 1, 2012, effective date. Treasury  officials stated that they had modeled the HAMP Tier 2 program after the  enterprises’ existing standard modification, believing that servicers would  be better able to implement a new modification that was similar to a type  of modification they already offered. Several servicers told us that  Treasury had provided an early draft of the proposed HAMP Tier 2  changes for their review, and Treasury officials told us that they had  consulted with servicers to establish effective dates for some changes. In  addition, the officials told us that as part of the process of implementing  HAMP Tier 2, Treasury’s program administrator, Fannie Mae, had relied  on existing servicer integration teams obtain implementation plans from  the largest servicers, facilitate responses to servicers’ policy questions,  and conduct onsite meeting with the largest servicers to address  operational and reporting question. Treasury officials also stated that they  responded to servicers’ questions on a weekly basis and had met with  several of the largest servicers to discuss their implementation plans.
In spite of Treasury’s efforts to help ensure that servicers had the  capacity to implement the recent changes and to facilitate implementation  of the changes, some servicers did not have the necessary resources or  infrastructure to effectively implement all the new program requirements  at the announced start date of the program. While the similarities between  the HAMP Tier 2 changes and the enterprises’ standard modification  should ease implementation in areas such as staff training, some large  servicers told us that there were some significant differences between  HAMP Tier 2 and the enterprises’ standard modification programs, such  as certain eligibility requirements and the use of an NPV model. Several  servicers we spoke with thought that they might not be able to meet the  effective date for the changes, and subsequently Treasury reported that  ten servicers were unable to fully implement the changes by the effective  date, including two large servicers that were not expected to fully  implement them for several more months (mid-October 2012 for one large  servicer). However, 17 of the 18 largest servicers were able to implement  some aspects of HAMP Tier 2 as of the effective date, and 14 of the 18  had fully implemented HAMP Tier 2 by June 30, according to Treasury.  To help ensure that the delays would not impact borrowers, Treasury  imposed additional requirements on all servicers that did not fully  implement HAMP Tier 2 by the June 1 effective date. These servicers  must develop a process to identify borrowers who are potentially eligible  for HAMP Tier 2; halt foreclosure referrals and foreclosure sales for those  borrowers; and ensure that each borrower has a single point of contact.  Additionally, servicers that are unable to fully implement HAMP Tier 2 by  mid-July will be required to evaluate and offer eligible borrowers  proprietary modifications similar to HAMP Tier 2 and either automatically  convert those borrowers to or reevaluate them for HAMP Tier 2  modifications when the changes are fully implemented. Treasury will  conduct compliance reviews to help ensure that all servicers appropriately  implement HAMP Tier 2 and adhere to the applicable interim  requirements.
Previously, Treasury officials had acknowledged that servicers might face  some challenges, as they did when they implemented the enterprises’  standard modification. For example, according to the officials the larger  servicers do not process proprietary loan modifications and modifications  for the enterprises in the same geographic location. Servicers may also  use different servicing platforms at each location, so that processing and  personnel can be completely separate. Other federal housing officials  also noted that the enterprises’ standard modification was more  streamlined than the HAMP Tier 2 modification, in that it did not require  an NPV test and allowed a broader DTI range. Treasury officials also  acknowledged several other major operational issues that could affect  implementation of the HAMP Tier 2 changes. For example, the five  largest servicers need to implement operational changes in response to  the recent mortgage settlement with the federal government and state  attorneys general. Fourteen servicers must comply with consent orders  issued by federal banking regulators in April 2011, and others have been  involved in mergers or acquisitions.
section_title: Treasury Has Not Conducted a Comprehensive Risk Assessment of HAMP Tier 2 Changes
paragraphs: Treasury officials told us that they had identified certain risks associated  with the recent changes based on internal analyses and discussions with  stakeholders, but Treasury has not conducted a comprehensive risk  assessment. Treasury officials said that they had incorporated ways to  mitigate risks as part of their deliberations when designing the program  changes and provided us with a summary document showing examples  of actions they had taken to mitigate certain risks and challenges. For  example, Treasury officials stated that they had lowered the allowable  DTI ceiling for HAMP Tier 2 modifications to 42 percent (below the  allowable DTI ceiling of 55 percent for the enterprises’ standard  modification) to mitigate redefault risks after discussing the proposed  changes with servicers, investors, and federal banking regulators. In  addition, Treasury raised the allowable DTI floor to 25 percent (above the  allowable DTI floor of 10 percent for the enterprises’ standard  modification) to help ensure that borrowers who received HAMP Tier 2  modifications were really in need of assistance. Further, Treasury noted  that it had taken several steps to mitigate the risk that servicers would not  be able to implement HAMP Tier 2 in a timely or effective manner due to  lack of capacity—efforts that we discussed earlier in the report.
However, based on our review of available documentation and  discussions with Treasury officials, Treasury did not appear to have  performed key components of a risk assessment that are outlined in  standards for internal control in the federal government prior to  implementing HAMP Tier 2. Although Treasury took the first step of  identifying risks, it did not analyze the significance and likelihood of  occurrence of the identified risks. As we previously reported, agencies  must identify the risks that could impede the success of new programs  and determine appropriate methods of mitigating these risks. In  particular, we highlighted the need for Treasury to develop appropriate  controls to mitigate risks before the programs’ implementation dates.  Our internal control guidance further states that risks should be  extensively analyzed whenever agencies begin the production or  provision of new outputs or services and that agencies should give  special attention to risks that can have more dramatic and pervasive  effects. Officials told us that they had nearly completed a systematic risk  assessment of the existing MHA programs and that they planned to  conduct a formal risk assessment of HAMP Tier 2 once it was up and  running and the servicers had been given the time to put their internal  controls in place. In the meantime, several potential risks identified in the  course of our review remain.
Allowing borrowers to receive loan modifications that result in front-end  DTIs of up to 42 percent under HAMP Tier 2, rather than the 31-percent  target required under HAMP Tier 1, could increase redefault risk.  Borrowers with high front-end DTIs may also have higher back-end  DTIs (which include mortgage debt from subordinate liens in addition to  the first-lien mortgage debt used to calculate the front-end DTI) that  could affect their ability to make the modified mortgage payments.  Although the back-end DTIs are not restricted under either the HAMP  Tier 1 or HAMP Tier 2 program, they may be higher under HAMP Tier  2, potentially posing a greater risk.
Permitting borrowers to obtain modifications for rental properties  without sufficient controls and enforcement mechanisms could  increase both default risk and the risk that the program will be  misused for ineligible properties—for example, investment properties  that are never rented. In order to receive a modification under HAMP  Tier 2 for a rental property, borrowers must self-certify under penalty  of perjury that they intend to rent the property if it is or becomes  vacant and that they do not own more than five single-family  properties (in addition to their principal residence). However, these  borrowers may encounter significant delays renting one or more  properties for a variety of reasons, such as adverse housing market  conditions and poor property condition, or the properties may  eventually rent for less than expected. In either case, the borrower’s  ability to remain current in either the trial modification or, more  importantly, the permanent modification, could be compromised,  risking redefault. Further, self-certifications do little to help ensure that  borrowers are in compliance with program requirements unless  extensive controls are in place to ensure that borrowers are telling the  truth. SIGTARP’s April 2012 Quarterly Report to Congress made  several recommendations related to the need for Treasury to protect  against the possible misuse of HAMP Tier 2 funds to modify loans on  vacation homes or investment properties that were never rented.
Further, some servicers expressed concern that extending the  deadline to December 31, 2013, and opening up HAMP Tier 2 to  mortgages on rental properties might jeopardize the safe harbor  protection provided under the Helping Families Save Their Homes Act  of 2009. The act provides a safe harbor for servicers that modify mortgages and engage in other loss mitigation activities consistent  with guidelines issued by Treasury and that satisfy specific  requirements, including implementing a loss mitigation plan prior to  December 31, 2012. Although Treasury officials stated that the  significance of this issue was unclear, two servicers we spoke to  noted that it could affect the reach of the program. Treasury officials  noted that servicers would face potential liability only if mortgage  holders or investors were to take legal action against them.
section_title: Treasury Has Not Developed Meaningful Performance Measures to Assess Program Changes
paragraphs: As we reported previously, Treasury must establish specific and relevant  performance measures that will enable it to evaluate a program’s success  against stated goals in order to hold itself and servicers accountable for  these TARP-funded programs. We recommended that Treasury finalize  and implement benchmarks for performance measures under the first-lien  modification program, as well as develop measures and benchmarks for  other TARP-funded homeowner assistance programs. As discussed in  appendix II, Treasury has estimated the expected funding levels for the  MHA component programs (except for HAMP Tier 2) and established  performance measures to assess servicer compliance and  implementation of MHA programs. But it has not fully developed specific  and quantifiable outcome measures or benchmarks to determine the  success of these programs, including goals for the number of  homeowners these programs are expected to help.
Similarly, Treasury has not identified outcome measures that will be used  to evaluate the overall success of HAMP Tier 2 in achieving the goals of  preventing foreclosures and preserving homeownership. The measures of  servicer performance used in the quarterly servicer assessments are  valuable indicators for monitoring how MHA programs are being  implemented, but they do not provide a way to assess the extent to which  each program is achieving the objectives spelled out in EESA. Treasury  officials said that they would assess redefault rates for different MHA  programs. Treasury officials believe that HAMP redefault rates compare  favorably with the rates of other types of modifications, but Treasury has  not yet established redefault rate benchmarks or goals. Also, Treasury  has noted that it may not be possible to gauge the unique contribution of  any one program among the array of activities aimed at supporting  housing markets and homeowners. Treasury officials told us that they  wanted to avoid creating unrealistic expectations when setting goals for  participation, given that external factors that affect participation are  difficult to predict. Instead, Treasury officials said that they were focusing  their efforts on working closely with servicers to encourage them to reach  out to homeowners and on encouraging homeowners to get help.
Treasury has established performance measures to assess servicers’  compliance with MHA program requirements and their performance that  are published in quarterly servicer assessments. The compliance  measures include quantitative measures with explicit benchmarks, such  as the percentage of servicers’ eligibility determinations and borrower  income calculations that are accurate. However, the servicer performance  measures, which include the servicer’s rate of converting trials to  permanent modifications, the number of trials lasting 6 months or longer,  response time to resolve inquiries that have been escalated to the HAMP  Solution Center, and the percentage of missing modification status  reports, do not have such benchmarks or goals. Instead, these measures  look at relative performance by comparing a servicer’s current  performance to either its past performance or to the best and worst  performance among the 9 largest MHA servicers.
section_title: Treasury Helped States Increase Hardest Hit Fund Spending but Could Improve Monitoring and Transparency
paragraphs: After a slow start, states have increased their spending on borrower  assistance under the Hardest Hit Fund in recent months, but it is not clear  that all the states will meet their spending and borrower assistance goals.  Nonetheless, most of the state officials we spoke to said that they  anticipated being able to spend their full allocation. State officials told us  that, with some help from Treasury, they had confronted challenges  related to staffing and infrastructure, servicer participation, borrower  outreach, and program implementation. In particular, they noted that  Treasury’s efforts to facilitate communication among the states and with  servicers through regular conference calls and two national summits had  been key to addressing a variety of challenges through the sharing of  best practices and solving problems together. These officials told us that  Treasury continued to work with them to address some of the remaining  barriers. In addition to assisting states in implementing their programs,  Treasury oversees the states’ activities, including reviewing and  approving all proposed changes to program eligibility requirements and  funding allocations. In addition, Treasury’s Hardest Hit Fund program staff  and compliance teams conduct oversight and monitoring of states’  Hardest Hit Fund activity monthly, quarterly, and annually. However,  Treasury has not required states to report data on administrative  expenses in a consistent format and does not report any data on these  expenses publicly. Treasury also has not consolidated states’  performance and financial data, including administrative expenses, into a  single public report.
subsections: section_title: Disbursements Began Slowly and Have Focused on Payment Assistance and Reinstating Loans
paragraphs: Treasury made the full Hardest Hit Fund allocations available to HFAs in  18 states and the District of Columbia in September 2010. However, of  the $7.6 billion allocated, states had provided combined assistance of  $359 million (5 percent) as of March 2012. More than two-thirds of the  amount spent ($246 million) was disbursed during the fourth quarter of  2011 and first quarter of 2012, representing a substantial increase relative  to previous quarters. The states also reported that they had provided  assistance to 43,580 borrowers as of March 31, 2012, more than half of  whom were approved during the most recent two quarters. The states  varied widely in the proportion of the funds they had disbursed, from less  than 1 percent of their total allocation to more than 20 percent (see fig. 3).  The two states with the largest Hardest Hit Fund allocations—California  and Florida—had spent about 3 percent of their allocated funds (less than  $80 million out of more than $3 billion) as of March 31, 2012. Despite the  recent increases in disbursements, Treasury estimated that most states  would need to further increase the rate of spending in order to fully spend  their allocation and reach their borrower assistance goals by the time the  program terminated on December 31, 2017. Using the first quarter 2012  disbursement rates, Treasury’s analysis showed that 14 of the 19 HFAs  would not meet their disbursement targets by the time the program  ended. In addition, although the states had estimated that they would  assist more than 450,000 borrowers by the end of the program,  Treasury’s projections indicated that, using the monthly rate of borrowers  approved during the first quarter of 2012, the states would assist fewer  than 350,000. Nonetheless, officials in four of the states we spoke to said  that they anticipated being able to spend their full allocation as they  continued to ramp up their programs. Officials in the fifth state said they  were actively exploring ways to increase participation in order to be able  to spend their full allocation.
As shown in figure 4, most of the funds allocated and spent as of March  31, 2012, have gone to helping unemployed homeowners make mortgage  payments (66 percent of allocations and 76 percent of expenditures) or to  reinstating delinquent mortgages (12 percent of allocations and 20  percent of expenditures). All 18 states and the District of Columbia have  implemented programs to provide partial or full mortgage payments to  borrowers who are unemployed. Some states, such as North Carolina  and Indiana, have incorporated reinstatement components into their  payment assistance programs. In addition, seven states have  implemented separate reinstatement programs. However, the eligibility  requirements for and terms of these programs vary across states. In  some states, the borrower’s household income must be below a certain  ceiling (for example, 120 percent of the area median income in  California). Another state (New Jersey) has no maximum household  income level, but the borrower’s monthly mortgage payment must be at  least 31 percent of household income. Some states have expanded the  eligibility requirements to reach more borrowers—for example, by adding  a definition of underemployment and allowing underemployed borrowers  to qualify for the program. Further, across states the length of time that  borrowers can receive assistance can be as short as 9 months and as  long as 36 months, while the maximum payment assistance an  unemployed or underemployed borrower can receive ranges from $9,000  to $48,000. Several states we spoke with were considering or had already  made changes to their program requirements in order to allow borrowers  to receive more assistance than initially planned in an effort to disburse  Hardest Hit Fund money more quickly. According to servicers we spoke  with, these types of programs complement other foreclosure mitigation  programs available to borrowers through federal and proprietary  programs.
States have also implemented other types of programs using Hardest Hit  Fund funds, including principal reduction, second-lien reduction, and  transition assistance. Through the first quarter of 2012, these programs  represented 22 percent of funds allocated to borrower assistance but less  than 5 percent of the states’ spending on such assistance. According to  states and servicers we spoke with, these programs have been more  difficult to implement widely because they generally require a greater  level of involvement and decision making from servicers than other  Hardest Hit Fund programs, such as payment assistance and loan  reinstatement. In addition, the enterprises do not participate in Hardest Hit  Fund principal reduction programs that require matching funds from  investors or servicers. Because most of the states with principal reduction  programs require matching funds, the pool of borrowers who are  potentially eligible for these programs is limited.
As of March 31, 2012, the states had spent $132 million on administrative  costs for implementing the programs, representing more than a quarter of  their total spending (see fig. 5). Treasury approves allocations for  administrative expenses as part of the program agreements it makes with  the states. As of March 2012, states had allocated about $864 million, or  11 percent of their funds, to administrative expenses. Two states (Nevada  and New Jersey) spent more on administrative expenses than they did on  borrower assistance (that is, administrative expenses were more than 50  percent of their total disbursements). Hardest Hit Fund officials in one  state pointed out that their program faced large initial costs because they  did not have the necessary infrastructure in place to implement it and  therefore had to spend time and resources at the outset developing  policies and procedures, leasing office space, and purchasing equipment.  Officials from another state said that their high initial administrative costs  were driven in part by up-front investments in technology they needed to  make in order to implement the program.
Treasury officials said that states had budgeted for initially high  administrative expenses to cover start-up costs. State officials and  Treasury staff told us that they expected administrative costs to fall after  the programs were established. However, it is not yet clear whether  states have spent all their budgeted start-up funds and transitioned to  using ongoing administrative expenditures to cover program activities. For  example, four states increased their cumulative administrative spending  by more than 50 percent in the first quarter of 2012. In addition, several  states have requested increases in their administrative budgets—for  example, to hire additional staff to implement their programs. Although  most states have spent less than 20 percent of their allocated  administrative expenses and are not at risk of running out of  administrative funds, efficient use of these resources will be important in  order for the states to achieve their goal of assisting borrowers. In  addition, Treasury’s rigorous oversight of spending decisions throughout  the life of the program will be critical to helping ensure that funds are  spent as intended.
section_title: Treasury Helped States Overcome Some Challenges, Although Other Challenges Remain
paragraphs: The states were slow to start disbursing funds for borrower assistance, in  part because of challenges they faced in getting their programs up and  running. In many cases, the state HFAs did not have direct experience  administering the types of programs they were putting in place and had to  learn as they went. Over time, they have been able to overcome some of  the challenges they face, although others remain.
In some cases, administering Hardest Hit Fund programs involved  unexpected activities. For example, officials in Ohio said that they did not  initially realize that they would need a call center or a closing unit to work  with servicers to finalize agreements to provide borrower assistance.  State officials had to identify the positions and skill sets that would be  needed to administer their programs and decide whether to use existing  HFA staff, hire new staff, or contract out certain functions. Florida officials  stated that they were using both new and existing HFA staff to administer  the Hardest Hit Fund programs, although not all of them were working on  these programs fulltime. Nevada and Ohio officials told us they had hired  new staff to perform functions specific to Hardest Hit Fund activities, while  California officials told us they had outsourced most of the operational  work to a third-party service provider. This company provides staff for a  call center and for processing, underwriting, and fulfillment on behalf of  the HFA. All of the states we spoke with were using local housing  counselors to help with borrower intake. States are also challenged to  make sure they have the right number of personnel to administer the  program. Officials in one state noted that it was a challenge to determine  how to scale up staffing (as well as systems, processes, facility needs,  and technology infrastructure) that had been put in place for the initial  Hardest Hit Fund allocation to accommodate the unexpected increase  after Treasury nearly doubled all the states’ allocations in the final round  of funding. Treasury officials told us that they monitored state staffing and  capacity to help ensure that states were able to administer Hardest Hit  Fund programs effectively.
State officials we spoke to also faced challenges related to getting the  needed infrastructure—office space, equipment, and information  technology—in place to implement the program quickly. One concern of  the states was getting a software and technology system in place to  facilitate the application process. Some states developed their own  systems, while others sought to identify existing products that could be  used. According to one state official we spoke with, Treasury facilitated  the sharing of best practices among the states, leading this state to adopt  a system that other states had tried and found to work for their Hardest  Hit Fund programs, which were similar in structure. This system,  Counselor Direct, has been adopted by 11 of the 19 states, according to  Treasury. While there have been some problems with the system, state  officials told us that they had found Counselor Direct to be responsive to  their needs.
In general, the states we spoke to said that servicer participation had  been a significant issue initially but that most servicers were now  participating in the mortgage payment assistance and reinstatement  programs. SIGTARP recently reported that states had some initial  difficulty getting servicers—particularly large servicers—to agree to  participate in their programs. These large servicers cited the  administrative burden of implementing more than 50 programs in 19  different states. Further, Fannie Mae and Freddie Mac did not initially  issue specific guidance to servicers about participating in the Hardest Hit  Fund programs. However, Treasury later took action to facilitate  participation by holding a national summit in September 2010 with the  states, servicers, and the enterprises that resulted in some  standardization of programs and communication methods. After the  summit, the enterprises issued guidance in October 2010 directing  servicers to participate in Hardest Hit Fund programs providing mortgage  payment assistance or reinstating delinquent loans, and subsequently  large servicer participation greatly increased.
The lack of servicer participation in other types of programs, such as  principal reduction and second-lien reduction, remains a challenge for  states that offer those programs. Nevada officials said that they were  having more success working with servicers on a case-by-case basis to  reduce or eliminate second liens than they had trying to require servicers  to sign formal agreements committing them to broad participation in their  second-lien program. As we noted earlier, the enterprises do not permit  servicers to participate in principal reduction programs that require  matching funds from the investor or the servicer, as most Hardest Hit  Fund principal reduction programs do. Without these loans, the number of  borrowers these programs can assist is limited. In addition, Treasury  officials and servicers we spoke with pointed out that the principal  reduction programs required greater involvement from servicers to  evaluate borrowers, something that servicers may not see as worthwhile  given the relatively small scale of the Hardest Hit Fund programs. Further,  given the requirements under the national mortgage settlement with the  federal government and state attorneys general, the large servicers are  more likely to focus on putting programs in place to meet those  obligations. According to one servicer, it is easier to develop one solution  that will satisfy the principal reduction requirements under the settlement  than to try to incorporate the various Hardest Hit Fund principal reduction  efforts. However, two states—Illinois and Oregon—are piloting different  types of principal reduction programs that bypass the servicers. These  programs involve buying the loans from the investor and then modifying  or refinancing them to reduce the principal. State officials credited the  regular conference calls that Treasury facilitated with spreading  information about these programs. Several states, including Ohio and  Florida, are waiting to see the outcomes of these pilot programs in order  to determine whether to pursue them.
Several states mentioned ongoing implementation challenges, in  particular in the area of exchanging information with servicers. One of the  barriers to servicer participation at the outset of the programs was the  lack of standardization across state programs. One of the solutions that  came out of the September 2010 national summit was the development of  a common data file that all states and servicers would use to exchange  information about borrowers and the assistance being provided. After the  summit, Treasury and several servicers and states jointly developed the  common data file. Initially, Treasury hosted a weekly teleconference with  the states and servicers that has since changed to a monthly schedule,  and any servicer or state can participate. Treasury has also overseen the  formation of a committee to discuss problems with and proposed changes  to the common data file. However, state officials told us that some  problems continued to come up related to the common data file and the  exchange of information. For example, they told us that servicers had  differing interpretations of how certain fields should be completed. One  state said that it had over 200 servicers participating in its Hardest Hit  Fund program and that each one had its own idea of how to complete the  fields. Servicers we spoke with said that states did not always provide  complete or accurate information in a timely manner—for example,  instructions for applying a payment to a borrower’s account were not  always clear or complete. Treasury officials said that although these  issues came up from time to time, the reduced frequency of the calls  reflected the decreasing number of issues raised related to the common  data file. Treasury officials told us that the data dictionary Treasury  helped to create clarified much of the confusion relating to interpreting  data fields. According to Treasury officials, several states have developed  their own training materials for using the common data file, including  Ohio, which has posted a tutorial on its website.
Reaching the targeted population of eligible borrowers is another  challenge states continue to face. Although broad marketing efforts help  to raise awareness of the programs states offer, they also result in a large  number of ineligible borrowers seeking assistance. For example,  California officials said they had received many inquiries from borrowers  about the state’s principal reduction program. However, a substantial  proportion of these borrowers were not eligible because their servicer was  not participating or they did not have a financial hardship but were merely  seeking a way to reduce their principal balance. In contrast, targeted  solicitations of distressed borrowers may not result in a high response  rate. Part of the problem in those cases, according to Nevada officials, is  that borrowers have been repeatedly warned about scams and are  therefore skeptical about the solicitation and unwilling to respond. In  some cases, borrowers may have made the decision not to seek  assistance and instead live rent-free until the foreclosure process runs its  course, which in Nevada can take 2 or 3 years. Florida officials said that  they relied on housing counselors to help steer borrowers to the most  appropriate program for their circumstances, including Hardest Hit Fund  programs. The officials said that they had developed marketing materials  that they distributed at events and to housing counselors. These materials  have different codes that can be used to track referrals. This technique  helps to identify the marketing channels that are most effective at  reaching eligible borrowers.
Treasury has incorporated the Hardest Hit Fund into its existing marketing  and outreach activities. Treasury officials told us that they had invited the  state HFAs to Treasury events in Hardest Hit Fund states, allowing the  HFAs to make presentations about their programs and network with  servicers and counselors. At some events, the states may even take  applications for assistance. Treasury’s website managers have also  exchanged information with HFAs on methods to improve their sites.  Treasury officials said that Hardest Hit Fund marketing must be done  locally because the programs differ from state to state and that these  differences had prevented Treasury from developing a national campaign.
Officials in the District of Columbia said that they had been successful in  partnering with the department that administers unemployment benefits to  obtain a list of those receiving unemployment benefits. By comparing the  addresses of individuals who appear on that list with a list of properties  receiving delinquency or foreclosure notices, they have been able to  effectively target their efforts to a relatively small population of borrowers  who are potentially eligible. According to Treasury officials, other states  have had similar success working across departments in their state  governments. Hardest Hit Fund officials in California told us they were  able to partner with the state office administering unemployment benefits  to mail out information on the Hardest Hit Fund unemployment program.  As a result, nearly 10,000 homeowners were identified as eligible for the  program.
Finally, state officials told us that they tracked the reasons borrowers who  were reached did not qualify for Hardest Hit Fund programs, an effort that  helped them identify borrowers in need of assistance who were ineligible  for it because they did not meet certain requirements. Officials in  California and Ohio said that the state uses these efforts to evaluate the  Hardest Hit Fund program requirements. As a result, they have been able  to propose changes to their programs to better reach borrowers who need  assistance.
section_title: Treasury Monitors Performance and Compliance but Has Not Standardized or Publicly Reported Administrative Expense Data
paragraphs: Treasury has established procedures to oversee the implementation and  performance of states’ Hardest Hit Fund programs but has opportunities  to improve both its monitoring and program transparency. Treasury  officials approve state Hardest Hit Fund programs and review and  approve all proposed changes to help ensure that the programs address  the goals laid out in EESA. When states propose changes to their  programs—for example, changing eligibility requirements, reallocating  funds, or adding or subtracting programs—they must submit amendments  to their agreements with Treasury for its approval. Treasury’s Hardest Hit  Fund program staff review the changes and supporting rationale to  ensure that the changes are consistent with the principles laid out in  EESA. Although some state officials we spoke with did not have concerns  about Treasury’s process for reviewing proposed amendments, they also  told us that they were not aware of specific criteria beyond consistency  with EESA that Treasury used to determine whether to approve the  proposals or request changes.
Treasury officials told us that they did not have prescriptive guidelines  (other than EESA), because the intent of the program was to let states  develop innovative solutions to the problems they faced. When the  amendment involves an increase in the amount allocated to  administrative expenses, state officials must state how the additional  funds will be spent. A committee of officials representing various parts of  OFS reviews and approves the proposed amendment, which the state  and Treasury often discuss in detail. The magnitude of the changes, as  well as whether another state has proposed something similar, can affect  how long it takes Treasury to review and approve them. Generally, state  officials told us that Treasury had been very responsive to requests for  program changes, often getting changes approved in a matter of weeks  or even days.
Treasury has established several layers of review and reporting to  monitor the states’ Hardest Hit Fund activity: annual compliance reviews  conducted by OFS compliance staff; required annual financial and  internal controls audits performed by independent third parties; quarterly  performance and financial reporting to Treasury, with the performance  reports posted on the HFAs’ websites; and monthly progress reports  submitted directly to Treasury.
Annual compliance reviews. The compliance team from OFS spends  one week on site at each HFA. These reviews examine the HFAs’  internal controls, eligibility determinations, program expenses,  administrative expenses, and reporting. The first round of compliance  reviews was scheduled to be completed by September 2012, with the  second round to be completed in 2013. Treasury has developed a  database to track items identified in the first round of compliance  reviews, and officials told us they were working to populate the  database with information from the compliance review reports that  had already been completed. Officials in one state who had recently  completed an initial compliance review said that they found the  process to be transparent and helpful. Treasury staff provided them  with a list of documents they needed and a schedule of interviews  with HFA staff. One other state told us that the compliance review and  findings were very helpful and that it had taken steps to implement  Treasury’s recommendations. Treasury stated that the compliance  reviews discovered issues that were largely one-time problems—for  example, control failures involving undocumented fee schedules or  unrecorded approvals. States generally correct these types of issues  on the spot, according to Treasury officials.
Annual financial and internal controls audits. As outlined in the  agreements with Treasury, states must submit annual audited  financial statements. Treasury has directed the states to post these  publicly on their websites. In addition, the states must certify that they  have an effective internal control program and must have a third party  independently verify the effectiveness of their internal control  programs on an annual basis. According to Treasury officials,  although states certified that their internal control programs were  effective during the first year, many of them did not get the  independent third-party verification. Treasury officials told us that they  had been addressing this issue by emphasizing the need for states to  have their internal control systems verified in the first round of  compliance reviews.
Quarterly performance and financial reports. Under the agreements  they signed with Treasury, the states are required to submit quarterly  performance and financial reports to Treasury and post the  performance reports on their websites. These performance reports  follow a standardized format specified by Treasury and detail  borrower characteristics and program outcomes. Treasury’s Hardest  Hit Fund program staff review states’ performance relative to the  goals they have established and discuss any challenges the states  are facing in reaching their goals. According to Treasury officials and  state officials we spoke with, the performance measures that they  focus on include denial rates and the percentage of completed  applications that receive assistance. State officials also look at the  percentage of applications started that are completed. As more  borrowers transition out of the program, states will focus more on  outcome measures, such as the percentage of borrowers that are  able to retain their homes 6, 12, and 24 months after receiving  assistance. The financial reports are submitted directly to Treasury,  but there is no standardized format for them. Treasury officials said  that states are required to submit responses to seven standard  questions, including requests for the total administrative expenses for  the quarter and cumulative administrative expenses, and must  reconcile the financial reports to the quarterly performance reports.
Monthly progress reports. The monthly reports outline the activities  each state undertook that month and the amounts spent on borrower  assistance and administrative expenses. According to Treasury  officials, the monthly reports are less formalized than the quarterly  performance reports and allow the states to provide qualitative  information about their programs. Treasury’s Hardest Hit Fund staff  discusses the contents of the progress reports with each state at least  quarterly (monthly if there are any performance concerns).
Even with these efforts, Treasury’s monitoring of administrative expenses  incurred by the states is limited by the lack of consistency in states’  reporting. Treasury has built controls into the system that states use to  draw down funds that prevent states from requesting draws for  administrative expenses that exceed the approved amount. Similarly,  Treasury has developed analytical tools to track administrative expenses  and the rate of spending overall. Treasury officials told us that they had  compared the rate of spending against state administrative expense  budgets that detailed expected spending over time. However, Treasury  has not standardized the format in which states are to provide  administrative expense data, limiting Treasury’s ability to compare  spending patterns across states and identify areas requiring greater  oversight. In addition, Treasury does not require states to submit detailed  reports of administrative expenses by category that would allow for a  comparison of actual expenses and the administrative budgets the states  submitted as part of their agreements with Treasury. According to  Treasury, administrative expenses are not easily comparable across  states because of differences in programs and their structures. However,  having states report this information to Treasury in a consistent format  could provide greater insight into states’ progress in implementing the  Hardest Hit Fund and inform Treasury’s oversight and monitoring  decisions. Standards for internal control state that operational and  financial data are necessary for program managers to determine whether  the programs are meeting goals and effectively and efficiently using  resources. Further, effective internal control systems provide  reasonable assurance to taxpayers that federal funds are used as  intended and in accordance with applicable laws and regulations. Without  detailed and consistent information on the types of administrative  expenses states have incurred relative to their plans for the program,  Treasury may be constrained in its ability to monitor (1) whether program  funds are being used effectively to achieve program goals and (2) the  relationships among program expenses, activities, outputs, and  outcomes.
Further, the transparency of the status of the Hardest Hit Fund and states’  performance could be enhanced. Although the quarterly performance  reports that detail the number of borrowers assisted and the total amount  of assistance the states provide are publicly available, Treasury does not  require states to publicly disclose the administrative expenses they incur  to implement the Hardest Hit Fund as part of the reporting. Treasury  officials told us that they informed the states in a recent teleconference  that this information would be required to be reported in the quarterly  performance report for the third quarter of 2012. In addition, Treasury  does not aggregate the quarterly performance and financial data it  receives to provide policymakers and the public with a snapshot of the  Hardest Hit Fund’s status. Treasury also has not made available to the  public consolidated reports on the states’ relative performance when  activities and performance measures are comparable across states—for  example, under the payment assistance or reinstatement programs— although Treasury officials said that they provided consolidated reports to  the states on a quarterly basis and to policymakers on request. As we  have previously reported, transparency remains a critical element in the  context of TARP and the unprecedented government assistance it has  provided to the financial sector. Such transparency could help clarify for  policymakers and the public the costs of Hardest Hit Fund assistance and  increase understanding of Hardest Hit Fund results. Improving the clarity  of communications about the costs and performance of Hardest Hit Fund  would help to inform decisions about how best to target remaining funds  to achieve program goals.
section_title: Conclusions
paragraphs: HAMP, the Hardest Hit Fund, and the newer MHA programs were part of  an unprecedented response to a particularly difficult time for our nation’s  mortgage markets. But 3 years after Treasury first announced that it  would use up to $50 billion in TARP funds for various programs intended  to preserve homeownership and protect home values, the number of  borrowers who received permanent HAMP first-lien modifications is far  below Treasury’s original estimates of the number of people who would  be helped by this program. The number of borrowers starting HAMP trial  modifications has continued to decline. In an effort to boost participation,  Treasury recently rolled out HAMP Tier 2 to extend and expand the  program. However, Treasury has made no definitive projections of the  number of borrowers who might be helped. The program has not been  fully implemented, and servicers have mixed opinions on its possible  effect. The recent changes are a positive step in the effort to reach  borrowers who have previously been denied HAMP assistance, but the  pool of eligible borrowers is diminishing over time.
Further, Treasury has taken steps to assess and facilitate servicers’  readiness, but several of the large servicers did not have the system  changes in place to process all aspects of HAMP Tier 2 modifications by  June 1, 2012. As we have noted in past reports, swift action on the part of  Treasury is imperative to help ensure that servicers have the ability to  implement new initiatives. As demonstrated by the initially slow rollout of  the HAMP first-lien modification program, the success of these TARP- funded initiatives will be largely driven by the capacity and willingness of  servicers to implement them expeditiously and effectively. Servicers could  be hampered by the myriad programs they currently must deal with,  including the settlement reached with the state attorneys general.
Treasury has established performance measures to assess servicers’  compliance with MHA program requirements and identified certain risks  associated with the recent changes, but it has not provided meaningful  performance goals or comprehensive risk assessments for HAMP Tier 2.  As we previously reported, agencies must identify the risks that could  impede the success of new programs and determine meaningful methods  of mitigating these risks. We have highlighted the need for Treasury to  develop necessary controls to mitigate those risks before a program is  implemented. Without the more meaningful risk assessments, Treasury  will not be able to fully and effectively use the nearly $46 billion in TARP  funds that it has obligated to meet the statutory goals of protecting  homeownership because of the possibility of increased redefaults or other  risks that could impede the success of the new program changes. In  addition, Treasury has not developed program-specific performance  measures for HAMP Tier 2. Without specific program measures, Treasury  will not be able to effectively assess the outcomes of these programs and  hold servicers accountable for performance goals.
Treasury has established several layers of review and reporting to  monitor the states’ Hardest Hit Fund activity, but its oversight and  monitoring of state administrative expenses for the Hardest Hit Fund are  limited, and the administrative expenses associated with these programs  are not transparent. Further, Treasury has not published consolidated  state performance reports and financial reports, including administrative  expenses incurred, limiting the ability of policymakers and the public to  assess the status of the program and each state’s performance relative to  other states. Without this information, policymakers and the public will  have difficulty evaluating whether the Hardest Hit Fund program is  achieving its goals in an effective manner.
section_title: Recommendations for Executive Action
paragraphs: In order to continue improving the transparency and accountability of  MHA and the Hardest Hit Fund programs, we recommend that the  Secretary of the Treasury take the following three actions: expeditiously conduct a comprehensive risk assessment of HAMP  Tier 2, using the standards for internal control in the federal  government as a guide; develop activity-level performance measures and benchmarks related  to the HAMP Tier 2 program; and  consolidate the state performance reports and financial reports,  including administrative expenses, into a single Hardest Hit Fund  report to provide policymakers and the public with the overall status of  the program as well as the relative status and performance of the  states’ efforts.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to Treasury and FHFA for review and  comment. FHFA provided the draft report to Fannie Mae and Freddie  Mac. We received written comments from Treasury’s Assistant Secretary  for Financial Stability that are reprinted in appendix III. We also received  technical comments from Treasury, FHFA, and Fannie Mae that we  incorporated as appropriate. In its written comments, Treasury did not  state whether it agreed or disagreed with our recommendations but noted  that it would respond in detail in its 60-day response letter to Congress.
However, Treasury stated that it took exception to our finding that it did  not conduct appropriate risk assessments prior to the implementation of  HAMP Tier 2. Specifically, Treasury noted that at the outset of the  development of HAMP Tier 2, it performed a baseline assessment of the  potential programmatic, technical, fraud, and other risks involved and  listed several activities it undertook during this assessment. In the draft  report, we acknowledged that Treasury identified various risks while  designing the program—such as the redefault risk associated with  modifications that would result in DTIs of up to 55 percent—and  described the actions Treasury cited as mitigating those risks. We also  described many of the activities Treasury outlined in its comment letter  related to the design and implementation of the program.
However, during our review Treasury was unable to provide  documentation of any risk assessments that had been performed during  the development of HAMP Tier 2. After receiving a draft of this report,  Treasury prepared a summary table that outlined examples of risks it had  identified and actions it had taken to mitigate them. We used this  information to incorporate additional examples into the report. However,  neither this summary nor Treasury’s description of its analysis indicated  that it had conducted a comprehensive analysis of these risks, including  an assessment of their significance and likelihood of occurrence, as  outlined in our standards for internal control. Without this type of detailed  information, determining whether the mitigating actions outlined by  Treasury are sufficient or comprehensive is difficult. In its comment letter,  Treasury stated that a more formal assessment might be more  appropriate for programs that were fully operational and had established  processes that were reasonably mature. As we have previously reported  and reiterate in this report, agencies must identify the risks that could  impede the success of new programs, determine appropriate methods of  mitigating these risks, and develop appropriate controls before the  programs’ implementation dates. As a result, our position remains that  Treasury must complete a comprehensive risk assessment that analyzes  the significance and likelihood of occurrence of the risks it has identified  in order to provide reasonable assurance that appropriate and meaningful  steps have been taken to mitigate risks associated with HAMP Tier 2. We  have clarified our recommendation to reference federal standards for  internal control as guidance regarding key aspects of a comprehensive  risk assessment.
We are sending copies of this report to interested congressional  committees and members of the Financial Stability Oversight Board,  Special Inspector General for TARP, Treasury, FHFA, the federal banking  regulators, and others. We also will make this report available at no  charge on the GAO 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. Key contributors to this report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: In response to a mandate in the Emergency Economic Stabilization Act of  2008, this report examines (1) steps the Department of the Treasury has  taken to design and implement recent changes to the Making Home  Affordable (MHA) programs and (2) Treasury’s monitoring and oversight  of state housing finance agencies’ (HFA) implementation of the Housing  Finance Agency Innovation Fund for the Hardest Hit Housing Markets  (Hardest Hit Fund).
To examine Treasury’s implementation of recent changes to MHA  programs, we reviewed internal documentation related to the decision- making process. We also obtained and analyzed Treasury’s Home  Affordable Modification Program (HAMP) data in its system of record,  Investor Reporting/2 (IR/2), through March 2012, to identify patterns in  program participation, and we determined that these data were  sufficiently reliable for the purposes used in the report. We also reviewed  MHA documentation issued by Treasury, including the supplemental  directives related to the recent changes related to HAMP Tier 2 as well as  the Principal Reduction Alternative and Second Lien Modification  Program incentives; the MHA handbook for servicers; and monthly  performance reports. We reviewed and analyzed 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 spoke with officials at Treasury to understand the  challenges faced in implementing these programs and the steps taken by  Treasury to assess the capacity needed for and risks of these programs,  as well as steps taken to measure the programs’ success. Further, we  spoke with management staff from five large MHA servicers about the  challenges and potential impact of implementing these program changes.  These five servicers were Bank of America; CitiMortgage; JP Morgan  Chase Bank; Ocwen Loan Servicing; and Wells Fargo Bank. We  identified them as large MHA servicers based on the amount of Troubled  Asset Relief Program (TARP) funds they were allocated for loan  modification programs. These five servicers collectively represented  about 68 percent of the TARP funds allocated to participating servicers as  of March 31, 2012. We also spoke with an organization representing  homeowners and community advocates about the potential impact of  implementing these program changes. Finally, we reviewed (1) the  Standards for Internal Control in the Federal Government to determine  the key elements needed to ensure program stability and adequate  program management; (2) Treasury’s strategic plan, monthly reports,  and quarterly servicer assessments to determine the goals, strategies,  and performance measures for the MHA program; and (3) leading  practices for program management under the Government Performance  and Results Act of 1993 (GPRA) and the requirements of the GPRA  Modernization Act of 2010.
To examine Treasury’s oversight and monitoring of the states’  implementation of the Hardest Hit Fund, we reviewed Treasury’s funding  announcements for the Hardest Hit Fund as well as program participation  agreements between the states and Treasury and subsequent  amendments to those agreements; quarterly performance reports  submitted by the states; analytical tools developed by Treasury to track  program spending for borrower assistance and administrative costs; and  examples of compliance reviews completed by Treasury and the states’  responses. We also spoke with officials at Treasury to understand the  challenges faced in implementing these programs and the steps taken by  Treasury to assess the capacity needed for and risks of these programs,  as well as steps taken to measure the programs’ success. Further, we  spoke with management staff from four states that received allocations  through the Hardest Hit Fund—California, Florida, Nevada, and Ohio— and the District of Columbia. To select states to interview, we considered  the size of the state’s allocation, the number of Hardest Hit Fund  programs administered by the state, the percentage of the allocation that  had been drawn as of December 2011, the borrower approval rate, and  the geographic location. We also spoke with mortgage industry  participants and observers, including servicers and associations  representing housing counselors and legal services attorneys.
We conducted this performance audit from February 2012 through July  2012 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.
section_title: Appendix II: Treasury’s Actions in Response to GAO’s Recommendations for TARP-Funded Housing Programs Last Reported as Open or Partially Implemented in September 2011
subsections: section_title: Troubled Asset Relief Program: Treasury Actions Needed to Make the Home Affordable Modification Program More Transparent and Accountable: GAO-09-837, July 23, 2009
paragraphs: Recommendation  As part of its efforts to continue  improving the transparency and  accountability of HAMP, the Secretary of  the Treasury should place a high priority  on fully staffing vacant positions in the  Homeownership Preservation Office  (HPO)—including filling the position of  Chief Homeownership Preservation  Officer with a permanent placement— and evaluate HPO’s staffing levels and  competencies to determine whether they  are sufficient and appropriate to  effectively fulfill its HAMP governance  responsibilities.
Actions taken  Treasury hired a permanent Chief Homeownership Preservation Officer  on November 9, 2009. Based upon input from HPO senior staff, the  Chief Homeownership Preservation Officer subsequently reduced the  staffing levels for HPO. In June 2012, Treasury officials stated that a  comprehensive staffing assessment was ongoing for all of the Office of  Financial Stability, including HPO.
section_title: Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs: GAO-10-634, June 24, 2010
paragraphs: Recommendation  As part of its efforts to continue  improving the transparency and  accountability of HAMP, the Secretary of  the Treasury should expeditiously  implement a prudent design for  remaining HAMP-funded programs.
Actions taken  Our March 2011 report identified areas in which Treasury had made  changes to the original design and requirements of the more newly  announced HAMP-funded programs (i.e., Second Lien Modification  (2MP), Home Affordable Foreclosure Alternatives (HAFA), and  Principal Reduction Alternative (PRA) programs) and made  recommendations to continue improving the transparency and  accountability of Making Home Affordable (MHA) related to these  newer programs. Those recommendations remain open.
As part of its efforts to continue  improving the transparency and  accountability of HAMP, the Secretary of  the Treasury should expeditiously finalize  and implement benchmarks for  performance measures under the first- lien modification program, as well as  develop measures and benchmarks for  the recently announced HAMP-funded  homeowner assistance programs.
Starting with the MHA program performance report through April 2011,  Treasury has publicly reported on the performance of the top 10  participating servicers in three categories—identifying and contacting  homeowners, homeowner evaluation and assistance, and program  management, reporting, and governance. Treasury has established  benchmarks for each of these three categories that consist of both  quantitative and qualitative (incorporating the results of its compliance  reviews) criteria. However, the performance metrics are based on the  HAMP first-lien modification program and do not contain measures or  benchmarks for the more recently announced TARP-funded  homeowner assistance programs.
Recommendation  As part of its efforts to continue  improving the transparency and  accountability of HAMP, the Secretary of  the Treasury should expeditiously report  activity under the principal reduction  program, including the extent to which  servicers determined that principal  reduction was beneficial to investors but  did not offer it, to ensure transparency in  the implementation of this program  feature across servicers.
Actions taken  Starting with its monthly MHA performance report for activity through  May 2011, Treasury began reporting summary data on the PRA  program. Specifically, Treasury provides information on PRA trial  modification activity (started, cumulative, and permanent), as well as  the median principal amounts reduced for active permanent  modifications. In addition, beginning with its MHA performance report  for activity through October 2011 and quarterly thereafter, Treasury  reported more detailed data on the characteristics of loans that  received PRA modifications. In June 2012, Treasury officials stated that  they had been working with servicers to improve the quality of the data  provided on PRA and were undertaking additional research to look at  the effectiveness. However, no data are reported on the extent to which  servicers determined that principal reduction was beneficial to the  investor but was not offered.
As part of its efforts to continue  improving the transparency and  accountability of HAMP, the Secretary of  the Treasury should expeditiously and  more clearly inform borrowers that the  HOPE Hotline may also be used if they  are having difficulty with their HAMP  application or servicer or feel that they  have been incorrectly denied HAMP;  monitor the effectiveness of the HOPE  Hotline as an escalation process for  handling borrower concerns about  potentially incorrect HAMP denials; and  develop an improved escalation  mechanism if the HOPE Hotline is not  sufficiently effective.
According to Treasury, it has promoted the HOPE Hotline through a  number of channels to the public as a resource for borrowers with  questions and problems about their HAMP application, trial period plan  or permanent modification. For example, the hotline number is  published on Treasury’s MHA website, featured in media campaigns,  and used in talking points for borrower/counselor events and media  interviews. Treasury’s MHA program guidelines require that servicers  include in their notices to borrowers regarding the status of requests for  a HAMP loan modification the telephone number for the HOPE Hotline,  with an explanation that the borrower can seek assistance at no charge  from HUD-approved housing counselors and can request assistance in  understanding the Borrower Notice by asking for MHA Help. In MHA  program guidance issued on November 3, 2010, Treasury standardized  the process required for handling certain borrower inquiries and  disputes related to the MHA Program. The guidance also outlines the  servicer’s obligations for tracking borrower inquiries and disputes and  conducting reviews in a timely fashion, whether received directly from a  borrower or indirectly from the HOPE Hotline, through MHA Help, or  the HAMP Solution Center. However, Treasury has not yet indicated  how it will monitor the effectiveness of the HOPE Hotline as an  escalation process for handling borrower complaints about potentially  incorrect HAMP denials.
section_title: Troubled Asset Relief Program: Treasury Continues to Face Implementation Challenges and Data Weaknesses in Its Making Home Affordable Program: GAO-11-288, March 17, 2011
paragraphs: Recommendation  As part of its efforts to continue  improving the transparency and  accountability of MHA, the Secretary of  the Treasury should require servicers to  advise borrowers to notify their second- lien servicers once a first lien has been  modified under HAMP to reduce the risk  that borrowers with modified first liens  are not captured in the Lender  Processing Services (LPS) matching  database and, therefore, are not offered  second-lien modifications.
Actions taken  In Supplemental Directive 11-10 issued on September 29, 2011,  Treasury announced that servicers must inform each borrower who  receives a HAMP permanent modification of the borrower’s potential  eligibility for a second-lien modification under 2MP. Treasury updated  the Home Affordable Modification Agreement Cover Letter form to  include model clauses that could be used to notify borrowers, including  a link to the MHA website to determine whether the second-lien  servicer was participating in 2MP and a statement encouraging the  borrower to contact the second-lien servicer if the servicer did not  contact the borrower within 60 days.
As part of its efforts to continue  improving the transparency and  accountability of MHA, the Secretary of  the Treasury should ensure that  servicers demonstrate that they have the  operational capacity and infrastructure in  place to successfully implement the  requirements of the 2MP, HAFA, and  PRA programs.
Treasury stated that Freddie Mac’s MHA-Compliance unit, the  compliance agent for the Making Home Affordable program, uses  information received from Fannie Mae, in its capacity as the MHA  program administrator, regarding servicer readiness for various  program elements as part of the compliance review scheduling and  planning process. Treasury noted that during the normal course of a  servicer review, part of the review is focused on the evaluation of new  programs such as HAFA, 2MP, and PRA as they are implemented by a  servicer. According to Treasury, the specifics of these evaluations are  designed to ensure adherence with the program guidelines, as well as  with the servicer’s ability to meet those guidelines. Treasury stated that  in instances in which a servicer had implementation challenges and  was unable to meet implementation timelines or specific elements of  the program, these matters would be raised to OFS management and  tracked to resolution by MHA-Compliance to ensure that  implementation occurred as soon as practicable.
As part of its efforts to continue  improving the transparency and  accountability of MHA, the Secretary of  the Treasury should consider methods  for better capturing outcomes for  borrowers who are denied or canceled or  have redefaulted from HAMP, including  more accurately reflecting what actions  are completed or pending and allowing  for the reporting of multiple concurrent  outcomes, in order to determine whether  borrowers are receiving effective  assistance outside of HAMP and whether  additional actions may be needed to  assist them.
Treasury stated that it had revised the survey it conducted of the 10  largest MHA servicers regarding the disposition of borrowers who had  been denied HAMP modifications or were cancelled from trials to ask  about dispositions of borrowers who were “in process” and “completed”  to clarify their status. Treasury stated that it was important to note that  survey data were generally collected for at least 3 months prior to  publication to ensure the integrity of the data. Therefore, the changes  made to the survey are not currently reflected in the data contained in  the monthly MHA program performance reports. Treasury stated that it  anticipated that it would be able to begin reporting using the revised  survey data in fall 2011. However, Treasury stated that it did not intend  to revise its survey to collect data on borrowers that were being  considered for multiple outcomes. Treasury stated that while borrowers  could be under evaluation for an alternative modification while in  foreclosure, the greatest impact would be the final determination (e.g.,  whether the borrower received an alternative modification or was in the  foreclosure path).
section_title: Appendix III: Comments from the Department of the Treasury
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Harry Medina (Assistant  Director), Dan Alspaugh, Don Brown, Emily Chalmers, John Karikari,  Marc Molino, Jill Naamane, Andrew Stavisky, Eva Yikui Su, James  Vitarello, and Henry Wray made key contributions to this report.