By Shahien Nasiripour in Washington
A federal auditor has warned that the Obama administration?s failure to crack down on recalcitrant banks risks harming distressed borrowers.
The warning, offered in a report released early Thursday, contrasts with comments earlier in the week by Barack Obama, US president, who chided banks for giving borrowers the ?runaround? when it came to lowering their mortgage payments through refinancings.
The US Treasury department has the authority to penalise banks for their noncompliance with the administration?s Making Home Affordable programme, but it has not been using that authority to ensure banks are not harming homeowners and improperly benefiting from taxpayer-provided aid, according to the Special Inspector General for the Troubled asset relief programme (Sigtarp).
The audit underscores the degree to which, three years after coming into office, Mr Obama has fallen short on promises to help troubled borrowers keep their homes. Initiatives launched beginning in early 2009 have fizzled out, disappointing members of Congress, key administration officials and Mr Obama?s supporters.
Heading into November?s election, Mr Obama is trying to put a renewed emphasis on healing the US property market. Dragged down by low credit availability, $700bn in negative equity and elevated delinquencies, Mr Obama announced this week a new refinancing programme to lower borrowers? monthly payments and help ease housing market woes.
Still, even as the White House proposes new initiatives, existing ones can be revamped, Sigtarp said, offering support to the administration in reaching its 2009 goal of helping 7m-9m borrowers avoid foreclosure.
?It is not too late for Treasury to make changes to the program, and there remains much that it can do to improve,? Sigtarp said.
A Treasury spokeswoman said the agency?s programmes have been among the most effective in helping borrowers avoid foreclosure.
To date, the administration has spent just $3bn of the $45.6bn authorised by the Tarp bail-out to restructure distressed borrowers? mortgages, Sigtarp said.
In its signature initiative, the Home Affordable Modification Programme, less than half of the modified mortgages have occurred using Tarp funds. The majority of mortgages were instead restructured using money supplied by US-controlled mortgage financiers Fannie Mae and Freddie Mac, Sigtarp said.
To aid more borrowers, Treasury should toughen its stance on noncompliance, the auditor said.
The agency ?continues to urge Treasury to take more aggressive steps to ensure that all service?s act in accordance with the program rules and the contracts they signed, for which they are being paid by the taxpayers,? Sigtarp said. ?Treasury should be using all of its financial remedies to force all services … into compliance.?
?In the midst of a housing crisis, services? failure to comply with programme rules is an obstacle to homeowners getting the help they need from Tarp, and Treasury must do everything it can do to remove that obstacle,? Sigtarp added.
For example, Treasury recently began temporarily withholding incentive payments to banks for their restructuring of mortgages under the administration?s programmes. Last month, Treasury warned it would permanently withhold about $64m in payments for JPMorgan Chase if it did not improve its performance.
?JPMorgan Chase?s continued refusal to comply with program requirements is extremely troubling,? Sigtarp said.
The bank has previously said it is improving its efforts.
The auditor said there must be ?serious repercussions?, like clawing back incentive payments, in order to send a ?strong signal … that failure to perform at acceptable levels will result in serious consequences.?
Sigtarp added that Bank of America?s alleged failure to improve its compliance with programme rules is ?deeply troubling? and that Treasury should also warn BofA that it will permanently withhold payment if those problems are not fixed.
?Sigtarp?s assessment of Bank of America?s performance in [these] programmes is drastically different from the positive measures validated by Treasury,? said the bank?s Dan Frahm. ?Bank of America meets the requirements of the programme and is performing at or better than our peers.?
A Treasury spokeswoman declined to comment on the recommendations.
? The Financial Times Limited 2012