Bailout Watchdog Calls Mortgage Programs a Bust

Government watchdogs are telling a Senate panel that the Obama administration's multibillion effort to help at-risk homeowners avoid foreclosure is not working and could put the economic recovery at risk.

Photo: Jeff Turner

Special inspector general for the financial bailouts Neil Barofsky said Wednesday that the program has not "put an appreciable dent in foreclosure filings," during a hearing on the $700 billion bank bailout before the Senate Finance Committee.

He also said the Treasury Department has ignored earlier demands that it set clearer goals for the program.

Elizabeth Warren, who chairs a separate Congressional Oversight Panel on the bailouts, said Treasury's failure to act more quickly could be hurting the recovery.

More foreclosures could force down the price of homes and further hurt the already-ailing housing industry.

The homeownership program aims to reduce mortgage payments for millions of homeowners who can't afford their monthly bills. Recent data suggest it has helped about 400,000 households avoid foreclosure. About 530,000 have fallen out of the program.

The bailout has provided up to $50 billion for the mortgage modification programs.

Barofsky said Treasury is giving mortgage companies too much leeway to decide which homeowners will qualify for a program to reduce the principal balance of their mortgages.

The program relies on voluntary cooperation from mortgage companies, Warren said. She said many of the mortgage debt collectors make more money when they foreclose than they do when helping homeowners.

"We have a crisis, and the consequences of not having cooperation from (mortgage) servicers is...felt by this entire economy," Warren said. "We need a program with far more urgency and some real teeth in it.

Also appearing at the hearing is a leader of the Government Accountability Office.

Their three offices are designated to provide transparency and oversight for the bailout program that Congress passed in October 2008.