Troubled Asset Relief Program: Treasury Should Estimate Future Expenditures for the Making Home Affordable Program
Published: 2016-03-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 2009 Treasury has obligated $27.8 billion in TARP funds through its MHA program to help struggling homeowners avoid foreclosure. The Emergency Economic Stabilization Act of 2008 includes a provision for GAO to report every 60 days on TARP activities. This report examines the extent to which Treasury is reviewing unexpended balances and cost projections for the MHA programs. To do this work, GAO used 2015 mortgage and other data from a private vendor and Treasury to help illustrate potential future costs of MHA/HAMP, reviewed internal Treasury documents, and interviewed relevant federal agency officials.
section_title: What GAO Found
paragraphs: The U.S. Department of the Treasury (Treasury) monitors activity and aggregate expenditures under its Troubled Asset Relief Program (TARP)-funded Making Home Affordable (MHA) program, but it has not instituted a system to review the extent that it will use the full available program balance ($7.7 billion as of October 16, 2015). In a July 2009 report, GAO found that Treasury's estimates of program participation may have been overstated, reflecting uncertainty caused by data gaps and assumptions that had to be made, and recommended that Treasury periodically review and update its estimates.
In response, Treasury started performing periodic estimates of the eligible HAMP population. Treasury officials previously told GAO that they could not reliably estimate future participation levels due to data limitations and that they assumed that all available MHA funds would be spent. GAO recognizes that no estimate of future participation and expenditures can be made with certainty. But prior GAO work has concluded that reviewing unexpended balances, including those that have been obligated, can help agencies identify possible budgetary savings. Moreover, Congress's recent action to limit entry into the MHA programs after December 31, 2016, and to allow Treasury to obligate up to $2 billion in TARP funds, including MHA funds, to the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest Hit Fund), provides Treasury with greater certainty and opportunity with respect to estimating and reprogramming excess MHA fund balances. Since then, the President's 2017 Budget identified $4.7 billion in potential excess funds, and Treasury has announced its intention to transfer $2 billion of these funds to the Hardest Hit Fund. Officials said that deobligating additional amounts would present undue risk of having insufficient funds, and that further estimates of excess funds should await the completion of all new activity.
GAO performed its own analysis of September 2015 mortgage data to estimate potential future HAMP participation and costs. This analysis resulted in estimates of MHA program balances as of October 16, 2015, that ranged from using all available funds to a surplus of $2.5 billion. In preparing these estimates, GAO attempted to provide a wide range of possible outcomes and generally used inclusive assumptions. Thus the actual number of eligible loans is likely to be lower and the unexpended balances higher than GAO's estimates. Taking action to estimate likely MHA expenditures allows Treasury to deobligate excess funds and, as appropriate, move funds to the Hardest Hit Fund. To the extent that additional funds may be deobligated, Congress may then have the opportunity to use those funds on other priorities.
section_title: What GAO Recommends
paragraphs: GAO is making two recommendations to Treasury and has one matter for congressional consideration. Treasury should (1) estimate future expenditures for the MHA program and any unexpended balances and (2) deobligate funds that its review shows will likely not be expended and move up to $2 billion of such funds to the TARP-funded Hardest Hit Fund as authorized. Congress should consider permanently rescinding any deobligated MHA funds that are not moved to the Hardest Hit Fund and make them available for other priorities. Treasury agreed with our recommendations and indicated that it has updated its cost estimates and subsequently deobligated $2 billion of MHA funds on February 25, 2016.

section_title: Letter
paragraphs: Since 2009, the U.S. Department of the Treasury (Treasury) has been  using funds under the Troubled Asset Relief Program (TARP) authorized  by the Emergency Economic Stabilization Act of 2008 (EESA) to address  weaknesses in the U.S. housing market. Treasury initially announced  that up to $50 billion would be used to help as many as 3 million to 4  million struggling homeowners avoid potential foreclosure but  subsequently reduced the amount to $37.5 billion. Of that amount,  Treasury has obligated $27.8 billion in TARP funds for the Making Home  Affordable (MHA) program. The cornerstone program under MHA is the  Home Affordable Modification Program (HAMP), which provides financial  incentives for eligible borrowers, servicers, and mortgage  holders/investors to modify first-lien mortgages. These modifications are  intended to prevent foreclosure by reducing homeowners’ monthly  mortgage payments to affordable levels.
Treasury has made extensive modifications to MHA programs, including  HAMP, since their introduction. These modifications include expanding  HAMP to cover additional homeowners and investors, providing additional  payment relief, and granting underwater borrowers principal reduction.  The modifications could result in additional expenditures of program funds  in the billions of dollars. However, billions of dollars obligated under the  MHA program remain unexpended, and GAO and the Congressional  Budget Office (CBO) have raised questions about the potential for excess  funds.
In previous reports, we looked at Treasury’s design and implementation  of HAMP and other TARP-funded housing programs and made several  recommendations to improve Treasury’s oversight of the programs. This  60-day report examines the extent to which Treasury has conducted  reviews of unexpended balances of MHA program funds. To address this  objective, we reviewed Treasury data and reports on program  expenditures and participation, CBO reports, and TARP documentation  related to the housing programs. We also analyzed MHA program  documentation, including supplemental directives for recent MHA  program changes and the MHA Program Handbook, and Treasury  memorandums and other internal documents.
To assess changes in mortgage performance since 2009 and the state of  the loan modification market, we analyzed summary data from (1) the  Mortgage Bankers Association, CoreLogic, Inc., and the Urban Institute  on mortgage delinquencies, negative equity, and credit availability, and  (2) the HOPE NOW Alliance and the Office of the Comptroller of the  Currency (OCC) on mortgage loan modifications completed between  January 1, 2009, and September 30, 2015. At our request, OCC  provided us with data summaries not published in the Mortgage Metrics  reports, such as analyses of the Mortgage Metrics portfolio by date of  origination of the modified loans. While we did not independently confirm  the accuracy of these summary data that we obtained, we took steps to  ensure that the data were sufficiently reliable for our purposes, such as  reviewing the data with officials familiar with generating the data and  reviewing related documentation. We found that the data were sufficiently  reliable for our purposes.
To illustrate a range of possible funding needs for MHA and HAMP, we  analyzed summary data on active first-lien mortgages as of September  30, 2015 that we obtained from a private data vendor—Black Knight Data  & Analytics LLC (Black Knight). We used those data to (1) estimate the  likely universe of residential mortgage loans potentially eligible for a  HAMP loan modification, (2) estimate the proportion of potentially eligible  loans that are likely to need and qualify for a HAMP loan modification  using factors which we first developed in our 2012 report in which we  evaluated the at-risk mortgage universe, and (3) estimate potential future  HAMP expenditures on the basis of average estimated life-time costs for  the various HAMP loan modification types using various scenarios. We  took a number of steps to ensure the reliability of the data and analyses  we purchased from Black Knight. For example, we discussed with Black  Knight officials the company’s internal procedures for ensuring data  reliability and the process used to complete the work we requested. We  reviewed information about its quality control process. We also conducted  reasonableness checks on data elements through electronic data testing  by comparing the Black Knight data to that of other publicly available  data. We determined that the data were sufficiently reliable for our  purposes. We also interviewed Treasury officials on program activities  and future plans. For additional information on our scope and  methodology, see appendix I.
We conducted this performance audit from August 2015 to March 2016 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 our audit objectives.
subsections: section_title: Background
paragraphs: Treasury’s Office of Homeownership Preservation within the Office of  Financial Stability, which administers Treasury’s TARP-related efforts, is  tasked with finding ways to help prevent avoidable foreclosures and  preserve homeownership. The $27.8 billion in TARP funds that Treasury  has obligated for MHA is to be used to encourage the modification of  eligible mortgages and to provide other relief to distressed borrowers.  Only loans that were originated on or before January 1, 2009 and that  meet other requirements are eligible for assistance under the MHA  program. In December 2015, Congress mandated that the MHA program  be terminated on December 31, 2016, with an exemption for HAMP loan  modification applications made before that date. Congress also provided  Treasury with the authority to extend its authority under EESA with  respect to the Housing Finance Agency Innovation Fund for the Hardest  Hit Housing Markets (Hardest Hit Fund) to December 31, 2017 for current  program participants and to obligate up to $2 billion of TARP funds to that  program.
subsections: section_title: Status of Making Home Affordable Program Funding Balance
paragraphs: Treasury uses contracts with its servicers to establish the amount of  funds that each servicer may receive under MHA for incentives or other  payments. Treasury initiated HAMP and the other TARP housing  programs using its authority under EESA and authorized Fannie Mae to  act as a financial agent. At Treasury’s request, Fannie Mae signed  contracts with banks and other mortgage servicers. As prescribed by  EESA, the contracts took the form of agreements to purchase financial  instruments from the servicers. For the MHA program, in these  contracts, known as servicer participation agreements, Treasury, through  Fannie Mae, committed to pay servicers for completing modifications of  mortgage loans according to the terms of HAMP and other MHA  programs. Each of these contracts establishes a maximum amount that  Treasury, through Fannie Mae, is obligated to pay the servicer.
Each of the contracts established a maximum amount that Treasury  would have to pay, and Treasury recorded these amounts for each  contract as obligations, for a total of approximately $27.8 billion. All of  the contracts were signed and the corresponding funds obligated in fiscal  years 2009 and 2010. Treasury has not obligated any new funds for MHA  since the end of 2010 but has made many adjustments to the amounts  originally set out in the contracts, pursuant to provisions set forth in the  contracts. The contracts do not require upfront payments of the full  maximum amounts; Treasury expends funds as servicers enroll  borrowers in modifications and complete other activities.
As of October 2015, $12.6 billion had been expended for all the MHA  programs, leaving $17.2 billion in obligated but unexpended funds. Of this  $17.2 billion, according to Treasury’s estimate, a maximum of $9.5 billion  could be expended through future payments to servicers for HAMP loan  modifications completed before October 2015 and for other activities that  servicers have already initiated. The remaining $7.7 billion in obligations  represents the amounts potentially available to servicers for future HAMP  modifications and other MHA transactions, as established in the original  contracts. Due to restrictions imposed by the Dodd-Frank Act, Treasury  may obligate TARP funds only for programs that were initiated prior to  June 25, 2010.
section_title: Making Home Affordable Program Components
paragraphs: MHA consists of several programs designed to help struggling  homeowners and prevent avoidable foreclosures.
HAMP first-lien modifications. The largest component of MHA is the  first-lien modification program. The program was intended to help  eligible borrowers stay in their homes and avoid potential foreclosures  by reducing the amount of their monthly payments to affordable  levels. Modifications are available for single-family properties (one to  four units) with mortgages no greater than $729,750 for a one-unit  property. Borrowers are eligible only if companies servicing their  mortgages have signed program participation agreements.  Participating loan servicers use a standardized net present value  (NPV) model to compare a modified loan’s expected cash flows to the  cash flows that would be expected from the same loan with no  modifications, using certain assumptions. If the expected cash flow  with a modification is positive (i.e., more than the estimated cash flow  of the unmodified loan), the participating loan servicer is required to  offer the loan modification. HAMP provides both one-time and  ongoing incentives to mortgage investors, loan servicers, and  borrowers for up to 6 years after a loan is modified. These incentives  take into consideration the servicers’ and investors’ costs for making  the modifications and are designed to increase the likelihood that the  program will produce successful modifications over the long term.  They include principal balance reductions for borrowers who make  payments on time and incentives for servicers tied to the amount by  which a modification reduces the borrower’s monthly payment.
The HAMP first-lien modification program has three components—the  original HAMP (Tier 1), an additional first-lien modification known as  HAMP Tier 2, and a modification with reduced borrower  documentation requirements known as Streamline HAMP. Announced  in March 2009, HAMP Tier 1 is generally available to qualified  borrowers who occupy their properties as their primary residence and  whose first-lien mortgage payments are more than 31 percent of their  monthly gross income, as calculated using the front-end debt-to- income (DTI) ratio. HAMP Tier 2, which was announced in January  2012, is available for both owner-occupied and rental properties, and  borrowers’ monthly mortgage payments prior to modification may be  less than 31 percent DTI. Streamline HAMP, which was announced in  July 2015 and requires servicers to have an implementation policy in  place as of January 2016, offers modification terms and eligibility  criteria similar to those of HAMP Tier 2 but does not require  documentation (or verification) of borrower income.
As part of the HAMP Tier 1 modification, servicers reduce a  borrower’s interest rate until the DTI is 31 percent or the interest rate  reaches 2 percent. The new interest rate is fixed for the first 5 years  of the modification. It then gradually increases by increments of no  more than 1 percent per year until it reaches the cap, which is the  Freddie Mac Primary Mortgage Market Survey rate at the time of the  modification agreement. The interest rate is then fixed at that rate for  the remaining loan term. In contrast, under HAMP Tier 2 and  Streamline HAMP, the interest rate is adjusted to a rate that remains  fixed for the life of the loan. The fixed rate is set using the weekly  Freddie Mac Primary Mortgage Market Survey Rate at the time of the  modification agreement.
For HAMP Tier 1, HAMP Tier 2, and Streamline HAMP, borrowers  must demonstrate their ability to pay the modified amount by  successfully completing a trial period of 3 months or more before a  loan is permanently modified and any government payments are  made. When a borrower defaults—misses three consecutive monthly  mortgage payments—after the loan has been permanently modified,  Treasury stops paying financial incentives to the borrower, servicer,  and investor for that modification. Borrowers who have received a  HAMP Tier 1 modification may be eligible for a HAMP Tier 2 or  Streamline HAMP modification under certain conditions. These  include having undergone a change in circumstances, having entered  into a permanent HAMP Tier 1 loan modification at least 12 months  earlier, or having defaulted on the HAMP Tier 1 modification (referred  to as redefault). In all cases, borrowers must otherwise meet HAMP  eligibility criteria, such as having a financial hardship.
The Second Lien Modification Program (2MP). 2MP is designed to  work in tandem with HAMP modifications to provide a comprehensive  solution to help borrowers afford their mortgage payments. Under  2MP, when a borrower’s first lien is modified under HAMP and the  servicer of the second lien is a 2MP participant, that servicer must  offer a modification and/or full or partial extinguishment of the second  lien. Treasury provides incentive payments to second lien mortgage  holders in the form of a percentage of each dollar in principal  reduction on the second lien. Treasury has doubled the incentive  payments offered to second lien mortgage holders for 2MP permanent  modifications that include principal reduction and have an effective  date on or after June 1, 2012.
Principal Reduction Alternative (PRA). 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 in principal reduction. Treasury has tripled  the PRA incentive amounts offered to mortgage holders/investors for  permanent modifications with trial periods effective on or after March  1, 2012. Participating servicers of loans not owned by the housing  enterprises (Fannie Mae or Freddie Mac) must evaluate the benefit of  principal reduction for mortgages with a loan-to-value (LTV) ratio that  is greater than 115 percent when evaluating a homeowner for a  HAMP first-lien modification. Servicers must adopt and follow PRA  policies that treat all similarly situated loans in a consistent manner  but are not required to offer principal reductions, even when the NPV  calculations show that the expected value of the loan’s cash flows  would be higher with a principal reduction than without it. When  servicers include principal reduction in modifications under PRA, the  reduction is initially treated as noninterest-bearing principal  forbearance. If the borrower is in good standing on the first, second,  and third anniversaries of the effective date of the modification’s trial  period, one-third of the principal reduction amount is forgiven on each  anniversary.
Home Affordable Foreclosure Alternatives (HAFA) Program. Under  this program, servicers offer foreclosure alternatives (short sales and  deeds-in-lieu of foreclosure) to borrowers who meet the basic  eligibility requirements for HAMP and do not qualify for a HAMP trial  modification, do not successfully complete a HAMP trial modification,  default on a modification (miss three or more consecutive payments),  or request a short sale or deed-in-lieu. The program provides  incentive payments to investors, servicers, and borrowers for  completing these foreclosure alternatives.
Home Affordable Unemployment Program. This program offers  assistance to borrowers who are suffering financial hardship due to  unemployment. Borrowers are eligible for a 12-month forbearance  period during which monthly mortgage payments are reduced or  suspended. Servicers can extend the forbearance period at their  discretion if the borrower is still unemployed after the 12-month  period. Borrowers who later find employment or whose forbearance  period expires should be considered for a HAMP loan modification or  a foreclosure alternative, such as the HAFA program. No TARP funds  are provided to servicers under this program.
Federal Housing Administration (FHA) and Rural Housing Service  (RHS) modification programs (FHA-HAMP and Rural Development, or  RD-HAMP, respectively). These programs are similar to HAMP Tier 1  and cover FHA-insured and RHS-guaranteed mortgage loans. If a  modified FHA-insured or RHS-guaranteed mortgage loan meets  Treasury’s eligibility criteria, the borrower and servicer can receive  TARP-funded incentive payments from Treasury.
In 2009, Treasury entered into agreements with Fannie Mae and Freddie  Mac to act as financial agents for MHA. Fannie Mae serves as the MHA  program administrator and is responsible for developing and  administering program operations, including registering, executing  participation agreements with, and collecting data from servicers and  providing ongoing servicer training and support. Freddie Mac serves as  Treasury’s compliance agent and has a designated independent division,  Making Home Affordable Compliance, which is responsible for assessing  servicers’ compliance with program guidelines, including conducting on- site and remote servicer loan file reviews and audits.
section_title: Changes in Mortgage Performance Since 2009
paragraphs: Several indicators of distress among homeowners with mortgages have  shown improvements since the height of the housing crisis, and evidence  suggests that recent loans are less risky than those originated before the  crisis. As shown in figure 1, the percentage of mortgages in default— delinquent 90 days or more—is lower than it was when HAMP was  introduced in 2009, according to data published by the Mortgage Bankers  Association. The percentage of mortgages that are seriously delinquent  (those in default or foreclosure) has declined from a peak in 2009 but  remains elevated relative to the period from 2000 to 2007.
In most parts of the country, a smaller proportion of homeowners owed 95  percent or more of their home’s value on a mortgage in 2015 than in  2008. According to published data from CoreLogic, the percentage of  properties with mortgages that are in negative equity or near negative  equity has declined in most states since 2008, but several states have  seen little improvement (see fig. 2). In two states, Nevada and Florida,  20 percent or more of homes that have mortgages fell into the negative  equity or near negative equity category as of the second quarter of 2015.  In other states—Rhode Island, Maryland, Illinois, New Jersey,  Connecticut, and New Mexico—the percentage of homes with mortgages  that fall into this category was not substantially lower in 2015 than in  2008.
According to the Housing Credit Availability Index (HCAI) developed by  the Urban Institute, the expected default risk of mortgages at origination  has declined since 2006. The HCAI is based on the historical default  rates of loans originated in selected years, for categories of loans defined  by borrower characteristics (such as credit scores and debt-to-income  ratios) and loan characteristics (such as the presence or absence of  prepayment penalties or adjustable interest rates). The historical default  rates, combined with data about loan terms and borrower characteristics  at origination, are used to generate a measure of expected default risk at  origination. The HCAI presents this measure in terms of the percentage of  loans originated in a given quarter that will probably default, that is,  become 90 or more days delinquent. This overall percentage is the sum  of product risk (risk due to characteristics of loans) and borrower risk (risk  due to characteristics of borrowers). When few loans with risky  characteristics are originated, the product risk will be low. As shown in  figure 3, the overall index remained between 10 and 17 percent for almost  a decade (from 1998 through the 3rd quarter of 2007) and was below 6  percent as of the 2nd quarter of 2015. By the 2nd quarter of 2015, the  index had increased from a low in 2013, but by less than 1 percentage  point. This change over time in the HCAI may also suggest that mortgage  credit is not as easily available as it was before the financial crisis.
section_title: Changes in the Volume of Mortgage Loan Modifications Since 2009
paragraphs: According to HOPE NOW, nearly 1.8 million mortgage loan modifications  were completed in 2010, and this number has steadily decreased since  that time, to a total of about 330,000 modifications in the first 3 quarters of  2015. The HOPE NOW estimate includes both HAMP and non-HAMP  modifications and is based on data from Treasury as well as data from  mortgage servicers, extrapolated to produce an estimate of the entire  U.S. mortgage market. According to the HOPE NOW data, in 2009, the  first year in which HAMP modifications were available, HAMP Tier 1  permanent modifications accounted for about 5 percent of the total  number of modifications completed that year. However, HAMP was not in  place for the full year, and servicers did not report the first permanent  HAMP modifications until the latter part of 2009. According to the HOPE  NOW data, HAMP permanent modifications (Tier 1 and Tier 2 combined)  have accounted for between 22 and 34 percent of the total number of  modifications completed each year since 2010. The same data indicate  that HAMP’s percentage of the total number of modifications decreased in  2012 and 2013 over the previous years, increased in 2014, and remained  above the 2012 level through the first 3 quarters of 2015.
Regarding the vintage of loans being modified, OCC data suggest that  pre-2009 loans represented the majority of modifications completed in the  first half of 2015 and in earlier years. OCC data, which are based on  loans serviced by national banks that report to OCC for its quarterly  Mortgage Metrics report, show that loans originated before 2009  represent the vast majority of all modifications performed since HAMP  was introduced in 2009, but the share represented by pre-2009 loans has  been decreasing. In the first 3 quarters of 2015, modifications of pre- 2009 loans represented 68 percent of the total number of modifications in  OCC’s Mortgage Metrics Report portfolio.
section_title: HAMP Modifications’ Effect on Borrowers’ Monthly Payments
paragraphs: According to the OCC Mortgage Metrics data, HAMP modifications have  resulted in greater payment reductions than non-HAMP modifications.  As described above, HAMP modifications are designed to help borrowers  stay in their homes by reducing monthly payments. Figure 4 compares  modifications under one of the HAMP programs—including FHA-HAMP  and enterprise HAMP modifications—with modifications performed  outside of HAMP. In both cases, only modifications of mortgages  originated before 2009 are included. As shown in figure 4, modifications  performed outside of HAMP in 2009 resulted in an approximately 10  percent median payment reduction, while modifications performed in one  of the HAMP programs resulted in an approximately 39 percent median  payment reduction. These two numbers have gradually converged over  time, and, by the third quarter of 2015, non-HAMP modified mortgages  received a median 22 percent payment reduction, while HAMP-modified  mortgages received a median 29 percent payment reduction.
section_title: Between 2009 and 2015, Treasury Did Not Assess Potential Unexpended MHA Balances Using an Estimate of Likely Expenditures Arising from Future Participation
paragraphs: Treasury did not update its original estimate of borrower participation in  the Making Home Affordable program between 2009 and 2015. Our prior  work has concluded that conducting reviews of unexpended balances can  help agencies identify funds that are not likely to be used. Treasury  officials previously indicated that they cannot reliably estimate future  borrower participation and likely program expenditures due to inherent  limitations of the available data. While no estimate of future participation  and expenditures can be made with complete certainty, our own analysis  of data from Treasury and a private vendor resulted in estimates of  borrower participation and cost projections that ranged from Treasury  using all available MHA funds to an estimated surplus of $2.5 billion. By  assessing likely future program participation and related expenditures,  Treasury could create opportunities for it and Congress to identify and  use any likely unexpended funds for other priorities. In providing technical  comments to this report, Treasury officials provided us with analysis of  expected future program participation and related expenditures for the  MHA program as a whole—the first such analysis since 2009.
subsections: section_title: Without Periodic Reviews of Unexpended Balances, Treasury May Miss Opportunities to Achieve Budgetary Benefits
subsections: section_title: Agencies Can Identify Opportunities for Budgetary Benefits by Reviewing Unexpended Balances
paragraphs: Prior GAO work has concluded that conducting reviews of unexpended  balances can help agencies identify opportunities to achieve budgetary  benefits. This work identified four key questions to consider when  evaluating unexpended balances.  1.  What mission and goals is the account or program supporting?   2.  What are the sources and fiscal characteristics of the funding?  3.  What factors affect the size and composition of the unexpended  balance?    4.  How does the agency estimate and manage unexpended balances?
This last question has particular relevance for the MHA program given the  approaching deadline of December 31, 2016, for entry into the program.
Understanding an agency’s processes for estimating and managing  carryover balances provides information that can be assessed to  determine how effectively the agency anticipates program needs and  helps ensure the most efficient use of resources. In our September 2013  report on evaluating account balances in federal accounts, we identified  several things to consider when attempting to understand how an agency  estimates and manages carryover balances, as the following examples  illustrate.   1.  What assumptions or factors did the agency incorporate into its  estimate of the account’s carryover balance (e.g., historical  experience, demand models)?   2.  Does the agency have a routine mechanism for reviewing its  obligations and determining whether there are opportunities to  deobligate funds (e.g., written procedures or ad hoc processes)?   3.  What is the agency’s timeline for obligating and expending funds in  the account?   4.  What is the spendout rate after funds have been obligated?
We also found in our 2013 report that if an agency does not have a robust  strategy in place to manage carryover balances or is unable to  adequately explain or support the reported carryover balance, balances  may either fall too low to efficiently manage operations or rise to  unnecessarily high levels. This produces potential opportunities for those  funds to be used more efficiently elsewhere. For example, if Treasury  were to identify and deobligate any MHA funds that are likely to not be  expended, these funds may then be available for Congress to  permanently rescind and use elsewhere for other priorities.
section_title: Treasury Did Not Update Its Estimate of MHA Program Participation and Costs between 2009 and 2015
paragraphs: In 2009, Treasury announced that as many as 3 million to 4 million  borrowers who were at risk of default and foreclosure could be offered a  loan modification under HAMP. In our July 2009 report, which reviewed  these estimates, we found that Treasury’s estimate may have been  overstated, reflecting uncertainty resulting from data gaps and the  numerous assumptions that had to be made. In addition, we noted that  documentation of the many assumptions and calculations necessary for  the analysis was incomplete and that Treasury had not specified its plans  for systematically updating key assumptions and calculations. We  concluded that to improve the validity of the projection, the process would  need to be supported by detailed information and complete  documentation and the key assumptions and calculations would need to  be regularly reviewed and updated. Based on those findings, we  recommended that Treasury institute a system to routinely review and  update key assumptions and projections about the housing market and  the behavior of mortgage holders, borrowers, and servicers, revising the  projections as necessary to assess the program’s effectiveness and  structure.
To address our recommendation, Treasury began obtaining information  from the Mortgage Bankers Association to update its estimate of the  number of HAMP-eligible borrowers. In August 2009 Treasury began  publicly reporting monthly data on the estimated eligible loans and in  January 2010 began publicly reporting data on the estimated eligible  borrowers for the HAMP Tier 1 program. However, Treasury  subsequently discontinued that practice after its February 2014 MHA  Program Performance Report, moving instead to quarterly reporting.
section_title: Treasury Cites Challenges in Estimating Future Participation and Related Expenditures
paragraphs: Instead of producing updated estimates of future program participation  and related expenditures, Treasury historically had assumed that all funds  obligated for MHA would be spent. Officials said that they focus on  monitoring the housing market and the behavior of its participating loan  servicers. For example, Treasury has been using a monthly report based  on servicer-reported data of individual transactions to monitor  expenditures in the aggregate and at the individual servicer level across  all MHA programs. In addition to Treasury’s monitoring reports, Fannie  Mae, in its role as financial agent, provides Treasury with a consolidated  estimate of potential future HAMP participation based on survey data that  it receives from MHA servicers. Additionally, Fannie Mae continues to  provide Treasury with an internal estimate of potentially eligible HAMP  Tier 1 borrowers based on a combination of industry data and information  received from MHA servicers (known as a “waterfall”).
Treasury officials have indicated that they have historically assumed that  all funds obligated for MHA would be spent under that program, and,  therefore, had not been analyzing likely unexpended or excess MHA  funds that could potentially be deobligated. Additionally, Treasury officials  previously indicated that they had not found the servicer survey data to be  reliable predictors of future participation. Instead, Treasury uses the  servicer surveys to look for trends in the HAMP modification activity data  and as a vehicle for discussions with servicers on their approaches to the  MHA program. Treasury officials also questioned the utility of the  waterfall, given several limitations. First, it may not be possible to acquire  a full knowledge of the factors that would make a borrower eligible, such  as current income, the current occupancy/use of the property, any  financial hardship, the borrower’s ability to meet applicable underwriting  criteria, and the modified loan’s net present value status from available  industry data sources. Second, estimating the potentially eligible  population for HAMP Tier 2, which the waterfall does not attempt to do, is  difficult because (1) all borrowers are first considered for HAMP Tier 1,  raising the possibility of double counting; (2) non-owner-occupied units  are only eligible if they are used for rental purposes; (3) each servicer  determines its own DTI range within Treasury’s established parameters;  and (4) servicers have limited historical data for HAMP Tier 2 on which to  base estimates. Third, Treasury officials noted that Fannie Mae’s waterfall  is only a point-in-time estimate and does not account for borrowers who  might become eligible in the future (a number that depends on a variety of  changing economic and market factors).
Instead, as we found in our July 2015 report, Treasury has focused on  identifying ways to increase the reach and effectiveness of MHA  programs by making program changes and modifications. For example,  Treasury’s internal Action Memorandums that describe program changes  and modifications, including its Streamline HAMP modification process,  for senior management indicate that Treasury has assumed that all funds  obligated for MHA would be spent. Over the course of the MHA program,  Treasury has extended program deadlines and introduced new features  designed to increase program participation and program expenditures.  However, as previously noted, in December 2015 Congress mandated  that the MHA program be terminated on December 31, 2016. Treasury  has stated that any program expansions or modifications resulting in  additional expenditures would remain within the amount obligated to the  MHA program. Treasury’s Action Memorandum that discussed Streamline  HAMP also explained that the amount that would ultimately be expended  in connection with the program change was difficult to estimate and would  depend on a number of factors that Treasury could not predict at that time  (e.g., national mortgage delinquency rates and other economic  conditions, borrower application rates, and the performance of modified  loans over time). Treasury officials previously told us that Treasury’s  mandate is to help as many struggling homeowners as possible. Treasury  officials also told us that the MHA Program Administrator will be  conducting program readiness assessments for Streamline HAMP  starting in January 2016 and will request the servicers’ Streamline HAMP  policies at that time. However, Treasury officials indicated that they  would not require servicers to report estimates of the population eligible  for Streamline HAMP as they do for HAMP Tier 1 and Tier 2. Given the  common eligibility criteria, Treasury expects that the potentially eligible  population for Streamline HAMP will significantly overlap with that of  HAMP Tier 1 and HAMP Tier 2. Estimating the potentially eligible  population for Streamline HAMP is challenging, in part because servicers  can tailor the eligibility criteria to their unique loan portfolios.
section_title: Treasury May Be Missing Opportunities to Achieve Budgetary Benefits
paragraphs: Because Treasury has not routinely estimated expenditures associated  with estimated likely future MHA program participation, it may not have  identified in a timely manner whether it is retaining funds that may not be  needed. Estimating likely future participation and associated expenditures  would provide Treasury greater assurance that the funds it has obligated  are necessary. As previously stated, as of October 2015, Treasury had  $7.7 billion in unexpended obligations representing the amounts  potentially available to servicers for future MHA transactions, including,  but not limited to, HAMP modifications. The President’s fiscal year 2017  budget submission indicates that Treasury is now estimating a $4.7 billion  reduction in total outlays for the MHA program. This estimate is based on  analysis Treasury prepared assuming that future activity will be similar to  recent activity. Treasury deobligated $2 billion of this $4.7 billion on  February 25, 2016. Treasury officials told us that deobligating all MHA  funds in excess of the current cost estimate would unduly increase the  risk of insufficient funding for future program expenditures. Additionally,  Treasury has indicated it plans to evaluate whether to deobligate  additional funds after the complete universe of MHA transactions (i.e.,  modifications, short sales, and deeds-in-lieu of foreclosure) is known,  sometime after entry into the MHA program is complete in late 2017.
In our 2012 assessment of federal grant programs, we found that  deobligating excess funds helps ensure that federal agency resources are  not improperly spent and helps agencies maintain accurate accounting of  their budgetary resources. Further, by preparing such estimates on a  periodic basis, Treasury can achieve greater certainty over time and  provide Congress with the opportunity to use those funds more efficiently  elsewhere.
section_title: Some of Our Estimates of Future MHA Program Activity and Costs Suggest That Treasury May Not Use All Funds
paragraphs: Because prior to the President’s 2017 budget submission Treasury had  not projected expenditures associated with likely future MHA participation  or the likely resulting unexpended balances, we performed our own  analysis to illustrate the potential range of estimated future participation in  the various HAMP programs and generate cost projections from those  estimations. These estimates are derived from data provided by a vendor  and are based on the vendor’s two datasets, for which it had September  30, 2015, loan-level information, and an extrapolation to the remaining  universe of loans for which the vendor had no data. We limited the  analysis to loans that were determined by the vendor to be originated  prior to January 2009 that were not owned by the housing enterprises or  insured or guaranteed by the government. These are just two of the  criteria for determining whether a loan meets basic eligibility criteria for  the MHA program. We also limited the analysis to reflect other program  requirements, as discussed further below. Based upon these estimates  of potential eligibility and program data on the typical costs of  modifications, we produced estimates of potential future costs. We  compared these estimates of future cost with available, but unused, funds  as of October 16, 2015, to produce estimates of potential excess funds.  For a complete description of our methodology, see appendix II.
Our results provide a range of potential future costs and excess funds  using various assumptions for three important factors—the extent to  which potentially eligible loans are serviced by HAMP-approved servicers,  whether the loan had been previously modified, and whether the loan was  60 or more days delinquent or otherwise met certain measures of risk that  might indicate that the loan was in imminent danger of default. Specifics  of each of the three factors follow.    1.  We prepared higher and lower estimates of costs and excess funds  assuming for the higher estimate that 62 percent of loans were  serviced by HAMP-approved servicers, and for the lower estimate that  57 percent of loans were serviced by HAMP-approved servicers.    2.  Within the higher and lower estimates, we projected estimated future  program costs for (a) loans that were 60 or more days delinquent that  met the basic HAMP eligibility criteria and (b) loans that were 60 or  more days delinquent combined with loans that were in imminent  danger of default. Loans that are 60 or more days delinquent are  potentially eligible for all three HAMP loan modification categories  (HAMP Tier 1, Tier 2, and Streamline HAMP). Loans in imminent  danger of default are potentially eligible for HAMP Tier 1 and Tier 2  modifications.    3.  Also within the higher and lower estimates, we estimated future costs  based on two different assumptions—that 25 percent of the at-risk  loans were currently in a loan modification (HAMP or non-HAMP) and  that none of the at-risk loans were currently in a loan modification.
Our analysis found that when considering the most inclusive of the  assumptions—that more loans are serviced by HAMP-approved  servicers, that both loans that are 60 or more days delinquent and loans  that might be at risk of default would be eligible, and that no loans are  already in modification—results in an estimate of Treasury using all  available funds. Conversely, using the least inclusive assumptions—that  fewer loans are serviced by HAMP-approved servicers, that only loans  that are currently 60 or more days delinquent would be eligible, and that  25 percent of loans are already in modification—results in an estimated  surplus of $4.8 billion, not considering other non-HAMP MHA costs. (See  table 1.)
Our high and low estimates of potential unused or excess funds are  based upon assumptions that generally would result in higher expected  eligibility and participation, higher overall costs and, therefore, lower  unused or excess funds, than might actually be realized. In particular, for  all scenarios, we assumed a borrower participation rate of 100 percent.  That is, we assumed that all borrowers that are eligible for modification  are offered and accept the modification. We also assumed that all  borrowers offered a trial modification would successfully complete their  trial and convert the modification into a permanent one, which is not likely  to be the case. In some scenarios we also established measures of  mortgage risk to approximate a definition of loans that are not 60 or more  days delinquent, but in imminent danger of default—a potential eligibility  qualification for modification under the Tier 1 and Tier 2 programs. Based  upon our analysis of at-risk loans, we assumed an approximate equal  split between the modifications for the 60 days or more delinquent and  the imminent default loans. According to Treasury data, approximately 20  percent of HAMP loan modifications went to borrowers that servicers  determined were in imminent danger of default. If instead one assumed  that loans that are in imminent danger of default would comprise 20  percent of the loans receiving a modification, then even our most  inclusive estimate of future cost would be $5.3 billion (versus $8.6 billion)  and the estimate of unused or excess funds would be much higher—$2.4  billion (versus a deficit of $0.9 billion).
Not shown in table 1 are estimates for program costs related to the non- HAMP programs of MHA. Treasury officials told us these non-HAMP  MHA programs are important because servicers can use the funds  obligated under the participation agreement for MHA programs other than  HAMP.Therefore, funds that are not used for HAMP loan modifications  could be used for non-HAMP MHA programs, such as the Home  Affordable Foreclosure Alternative and the FHA/RD HAMP programs.  According to Treasury, it expended approximately $467 million for the  non-HAMP programs during fiscal year 2015. Extrapolating that amount  over an additional 6 years (entry into the MHA programs ends on  December 31, 2016, and incentive payments can extend up to 5 years  after entry, as in the case of the 2MP program) would result in an  additional $2.3 billion in MHA expenditures. Together with our lowest  estimate of HAMP program costs, total MHA program costs could  therefore be $5.2 billion, which would leave an estimated $2.5 billion in  potentially excess funds. In contrast, our high estimate resulted in all  available MHA program funds being spent. Also, as previously noted,  our analysis does not include estimates for HAMP modification of loans  owned by the housing enterprises or insured or guaranteed by the  government.
CBO has also conducted analysis that illustrates the uncertainty about  whether or not Treasury will likely spend all the funds allocated to the  MHA programs. CBO’s most recent analysis, published in March 2015,  projected a $9 billion surplus (with Treasury estimating full use of $37  billion in funds and CBO estimating use of $28 billion) over the amount  that Treasury has estimated, because CBO anticipated that fewer  households would participate in housing programs. CBO had increased  its estimate of likely expenditures of TARP-funded housing programs by  $2 billion from its previous year’s estimate, primarily because of  Treasury’s announcement in November 2014 of an additional $5,000 in  principal reduction for participants in the sixth year of a mortgage  modification. CBO’s projections were made before Treasury’s  announcement of its Streamline HAMP program, which if taken into  account will likely decrease CBO’s estimated surplus.
section_title: Conclusions
paragraphs: Treasury has not consistently been estimating expenditures related to  likely future program participation and the likely resulting funding  balances for the MHA programs because of concerns about the inherent  limitations of the available data. In addition, Treasury assumed that it  would use all funds obligated for MHA. However, conducting reviews of  unexpended balances, including those that have been obligated, can help  agencies redirect resources to other priorities or identify opportunities to  achieve budgetary benefits. Additionally, if Treasury were to deobligate  MHA funds that it determines were likely to not be expended, this may  provide Congress with the opportunity to use those funds for other  priorities. Our eligibility estimates, cost projections, and estimated  unexpended balance figures represent a wide range of possible future  outcomes, including a potential surplus in some cases, even when  including potential future costs of non-HAMP housing programs.  Treasury, with the assistance of its program administrators and servicers,  is in a better position to conduct its own estimates of the number of  eligible borrowers, potential costs of the program, and any balances that  remain unexpended. We recognize that no estimate of future participation  and expenditures can be made with complete certainty. However,  Treasury has historically assumed that all MHA program funds will be  spent and has instead focused on ways to expend the existing balance by  making program changes and modifications. Congress recently enacted  legislation that effectively terminates entry into the MHA programs after  December 31, 2016, and authorized Treasury to move up to $2 billion in  TARP funds to the Hardest Hit Fund. In February 2016, Treasury  deobligated $2 billion and announced plans to move these funds to the  Hardest Hit Fund. By taking action to estimate likely MHA expenditures  and potential excess funds, Treasury could identify additional  opportunities to deobligate those funds.
section_title: Matter for Congressional Consideration
paragraphs: To better ensure that taxpayer funds are being used effectively, Congress  should consider permanently rescinding any Treasury-deobligated excess  MHA balances that Treasury does not move into the Hardest Hit Fund.
section_title: Recommendations for Executive Action
paragraphs: To provide Congress and others with accurate assessments of the  funding that has been and will likely be used to help troubled borrowers  and to identify any potential obligations not likely to be used, the  Secretary of the Treasury should (1) review potential unexpended  balances by estimating future expenditures of the MHA program; and (2)  deobligate funds that its review shows will likely not be expended and  obligate up to $2 billion of such funds to the TARP-funded Hardest Hit  Fund as authorized by the Consolidated Appropriations Act, 2016.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to Treasury, OCC, FHFA, Fannie Mae,  and Freddie Mac for review and comment. OCC, FHFA, and Fannie Mae  had no technical comments and did not provide written comments.  Treasury provided written comments which are presented in Appendix III.   In addition, Treasury and Freddie Mac provided technical comments that  we incorporated as appropriate throughout the report. Additionally,  Treasury provided information on recent analyses of MHA obligations and  actions to deobligate funds, which are discussed below.
In its comment letter, Treasury agreed with our recommendations and  stated that it had updated its cost estimates for MHA and planned to  deobligate $2 billion from the program, which it did on February 25, 2016.
Treasury stated in its comment letter that it agreed with the statement in  the draft report that the recent Congressional action to terminate MHA on  December 31, 2016, provided Treasury with greater certainty and  opportunity with respect to estimating and reprogramming excess MHA  fund balances.
In addition, Treasury provided information related to actions to deobligate  certain funds, which we have incorporated as appropriate.  Specifically,  Treasury noted that its updated cost estimates had identified an additional  $2.7 billion in potential excess MHA funds but that deobligating all MHA  funds in excess of the current cost estimate would unduly increase the  risk of insufficient funding for future program expenditures. Instead,  Treasury stated that it will evaluate whether to deobligate additional funds  after the complete universe of MHA transactions is known in late 2017.  According to Treasury, once servicers have reported all final transactions  to the MHA system of record, they plan to calculate the maximum  potential expenditures under MHA and deobligate excess funds, as  appropriate. Given the uncertainties in estimating future participation and  the associated expenditures, in particular the impact of the Streamline  HAMP program, it will be important for Treasury to update its cost  estimates as additional information becomes available and take timely  action to deobligate likely excess funds. We have updated the relevant  sections of the report to reflect these new developments and added  language reflecting Treasury’s planned actions.
We are sending copies of this report to the appropriate congressional  committees. This report will be available at no charge on our website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or sciremj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made major contributions to this report  are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: In response to a provision in the Emergency Economic Stabilization Act of  2008 that requires GAO to issue a report on TARP every 60 days, this  report examines to what extent the Department of the Treasury  (Treasury) is reviewing unexpended balances and cost projections for the  Troubled Asset Relief Program (TARP)-funded Making Home Affordable  (MHA) program.
To assess changes in mortgage performance since 2009 and the state of  the loan modification market, we analyzed summary data from (1) the  Mortgage Bankers Association, CoreLogic, Inc., and the Urban Institute  on mortgage delinquencies, negative equity, and credit availability, and  (2) the HOPE NOW Alliance and the Office of the Comptroller of the  Currency (OCC) on mortgage loan modifications completed between  January 1, 2009, and September 30, 2015, by servicers that report data  to the Department of the Treasury’s Office of the Comptroller of the  Currency (OCC) for OCC’s Mortgage Metrics Report. At our request,  OCC provided us with data summaries not published in the Mortgage  Metrics reports, such as analyses of the Mortgage Metrics portfolio by  date of origination of the modified loans. We also used data on negative  equity on homes published by CoreLogic, Inc. and data on a measure of  housing credit availability published by the Urban Institute. While we did  not independently confirm the accuracy of these summary data that we  obtained, we took steps to ensure the data were sufficiently reliable for  our purposes, such as reviewing the data with officials familiar with  generating the data and reviewing related documentation. We found that  the data were sufficiently reliable for our purposes.
To assess the extent to which Treasury is reviewing unexpended  balances and cost projections for the MHA program, we collected and  reviewed internal Treasury memorandums on the purpose and  justification of program changes made in 2014 and 2015. We reviewed  Fannie Mae servicer survey results as well as Fannie Mae projections of  eligible borrowers and loans to understand the factors that might affect  program participation. We reviewed internal Treasury estimates of the  average cost of modifications, and of obligations, future expenditures, and  remaining funds for the MHA programs. We also reviewed a prior GAO  report on best practices concerning reviews of unexpended balances and  cost projections, which we used as criteria to evaluate the extent to which  Treasury is reviewing unexpended balances and cost projections for the  MHA programs. In addition, we conducted our own analysis of potential  future program participation and the likely associated costs to illustrate  the potential for unexpended balances. To do so, we used analyses as of  September 30, 2015, that we directed and that were prepared by a  private vendor of mortgage data—Black Knight Data & Analytics, LLC  (Black Knight)—as detailed in appendix II. We took a number of steps to  help ensure the reliability of the data and analyses we purchased from  Black Knight. For example, we reviewed related documentation, such as  Black Knight’s technical quote in response to our solicitation. We  discussed with Black Knight officials Black Knight’s internal procedures  for ensuring data reliability and the process by which they completed the  work we requested. We reviewed information provided by Black Knight  describing its quality control process. We also conducted reasonableness  checks on certain data elements comparing the Black Knight data to that  of other industry data sources, such as the Mortgage Bankers Association  and CoreLogic, Inc. We determined the data were sufficiently reliable for  our purposes. Further, we analyzed the Congressional Budget Office’s  (CBO) most recent published analysis of projected TARP spending. We  had previously spoken to CBO officials about their cost estimates for the  MHA program. We confirmed that they had not changed how they  calculated their cost estimates. We also conducted interviews and  reviewed past records of interviews with Treasury officials about the  status of the programs, including any future program changes, and their  projections for completing expenditure of TARP-housing funds.
We conducted this performance audit from August 2015 to March 2016 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: Technical Discussion of GAO Analysis of Potential Home Affordable Modification Program Unexpended Balances
paragraphs: We performed our own analysis to illustrate the potential range of  estimated future participation in HAMP and generate cost projections.  These estimates are derived from September 30, 2015, summary data  provided by a vendor and are based on the vendor’s two datasets and an  extrapolation to the remaining universe of loans for which the vendor had  no data. The first of the datasets, which includes only data reported by  HAMP-approved servicers, includes loans for which loss mitigation  actions are known (loss mitigation known). The second dataset includes  loans for which loss mitigation actions are not identified (loss mitigation  unknown). These data were provided to the vendor by a variety of loan  servicers, the majority of which were approved for HAMP, according to  the vendor. Based on known factors such as loan type and vintage, the  vendor extrapolated to the remaining universe of loans for which it had no  loan-specific data.
subsections: section_title: Estimated Future HAMP Expenditures and Unused Funds
paragraphs: The third part of our analysis estimated future HAMP expenditures and  potential unexpended balances for the MHA program using estimated  costs for the various HAMP loan modification types and various exclusion  scenarios. To perform this analysis, we first assumed that modifications of  potentially eligible loans that were 60 or more days delinquent would be  split between HAMP Tier 1 and HAMP Tier 2/Streamline HAMP  modifications at a ratio of 24.5 percent to 75.5 percent. This assumption  was based on the expectation that Streamline HAMP is expected to have  similar participation rates based on current trends reported by the  enterprises and the increases in HAMP Tier 2 relative to HAMP Tier 1  observed during 2015. We further assumed that modifications of  potentially eligible loans that were not 60 days delinquent and had two or  more risk factors would be split between HAMP Tier 1 and HAMP Tier 2  at a ratio of 50 percent and 50 percent (loans that are not 90 days-plus  delinquent are not eligible for Streamline HAMP) based on the split  between new HAMP modifications made during calendar year 2015.
We then reduced the estimate of potentially at-risk eligible loans to  account for various exclusions or reasons that a loan modification may  not be offered. Depending on the particular modification program, these  exclusions can include such things as unemployed borrower, property  being vacant, debt-to-income ratio of less than 31 percent, negative net  present value test results, and investor restrictions. Overall, based on  servicer survey data provided by Treasury, we assumed that the  combined exclusions would be about 50 percent for HAMP Tier 1 and 42  percent for both HAMP Tier 2 and Streamline. The estimate further  accounted for two scenarios—one in which 25 percent of the at-risk loans  were assumed to currently be in modification, and one in which we  assume that no at-risk loans were currently in modification—of loans that  would not be offered further modification. Finally, we applied the average  expected cost of a HAMP Tier 1 modification and the average expected  cost of HAMP Tier 2 modifications to both HAMP Tier 2 and Streamline  modifications. Our analyses resulted in a range of estimated unused or  excess funds, from a surplus of $4.8 billion to Treasury using all available  funds depending on the share of the HAMP-approved servicers  represented in the data, the definition of the at-risk borrowers, and the  percentage of loans that are currently in modification (see table 5).
It is important to recognize that these high and low estimates of potential  unused or excess funds are based upon assumptions that generally  would result in higher expected eligibility and participation, higher overall  costs and, therefore, lower unexpended balances, than might be realized.  In particular, we assume a borrower participation rate of 100 percent.  Furthermore, according to Treasury, approximately 20 percent of HAMP  loan modifications are imminent default borrowers. In our calculations  shown in table 5, the analysis had an approximate equal split between the  modifications for the 60 days-plus delinquent and the imminent default  loans. If instead one assumed that loans that are in imminent danger of  default would comprise 20 percent of the at-risk loans, then the estimated  future cost of low estimates of participation would only be $5.3 billion  (versus $8.6 billion) and the estimate of unused or excess funds would be  much higher—$2.4 billion (versus -$0.9 billion).
Not shown in the table are estimates for program costs related to the non- HAMP programs of MHA. These non-HAMP MHA programs are important  because servicers can use the funds obligated under the participation  agreement for MHA programs other than HAMP, and therefore funds that  are not needed for HAMP loan modifications could be used for non- HAMP MHA programs, such as the Home Affordable Foreclosure  Alternative and the FHA/RD HAMP programs. According to Treasury, it  expended approximately $467 million for the non-HAMP programs during  fiscal year 2015. Extrapolating that amount over an additional 6 years  (entry into the MHA programs ends on December 31, 2016, and incentive  payments for certain non-HAMP programs can extend up to 5 years after  entry) would result in an additional $2.3 billion in MHA expenditures.  Together with our lowest estimate of HAMP program costs, total MHA  program costs could therefore be $5.2 billion, which would leave an  estimated $2.5 billion in potentially excess funds. In contrast, our high  estimate resulted in all available MHA program funds being spent. Also,  as previously noted, our analysis does not include estimates for HAMP  modification of loans owned by the housing enterprises or insured or  guaranteed by the government.
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, John A. Karikari and Harry  Medina (Assistant Directors), Jon D. Menaster, (Analyst-in-Charge),  Theodore Alexander, Bethany M. Benitez, Emily R. Chalmers, William R.  Chatlos, Lynda E. Downing, Carol M. Henn, Marc Molino, Oliver M.  Richard, Estelle M. Tsay-Huang, James D. Vitarello, and William T.  Woods made key contributions to this report.