$75 billion foreclosure prevention program has been weakened, perhaps fatally, by lax oversight and a posture of cooperation – rather than enforcement – with the nation’s biggest banks.
One audit, conducted on Treasury’s behalf by the government-supported mortgage company Freddie Mac, found that 200,000 struggling homeowners had not been told they were eligible for the program, as servicers are required to do. Auditors also found 15 of the largest 20 participating servicers were incorrectly using the Treasury formula that determines if homeowners qualify for the program.
Rather than imposing penalties, Treasury simply asked the servicers to contact the homeowners that had been missed and rerun the numbers for those who had been wrongfully denied because of the formula error.
When banks entered the program, they agreed to certify annually that they’ve followed the rules of the program. But lobbyists from the Financial Services Roundtable and the Mortgage Bankers Association suggested adding exemptions.
Later that month, the Treasury revised its certification requirements, making them similar to those the industry sought. Under the new rules, servicers can define for themselves what violations were significant enough to disclose.
The new policy is "not only like putting the fox in charge of the hen house," said Cohen of the National Consumer Law Center, "but asking the fox to fine itself for each chicken eaten."