MHA was initially set to end  December 31, 2012, but Treasury recently extended the MHA application  deadline by 1 year to December 31, 2013. HAMP Tier 2 became available to borrowers June  1, 2012. Treasury Has Not Fully Assessed the Risks of or Developed Performance Measures for the Recent Changes to MHA Programs

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. The servicers that we queried had  mixed views on the likely effectiveness of these changes on increasing  MHA participation. 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). Treasury Helped States Increase Hardest Hit Fund Spending but Could Improve Monitoring and Transparency

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. 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. Treasury also has not consolidated states’  performance and financial data, including administrative expenses, into a  single public report. However, of  the $7.6 billion allocated, states had provided combined assistance of  $359 million (5 percent) as of March 2012. 3). As of March 2012, states had allocated about $864 million, or  11 percent of their funds, to administrative expenses. Treasury officials said that states had budgeted for initially high  administrative expenses to cover start-up costs. Quarterly performance and financial reports. 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. Without specific program measures, Treasury  will not be able to effectively assess the outcomes of these programs and  hold servicers accountable for performance goals. Recommendations for Executive Action

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. 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. Appendix I: Objectives, Scope, and Methodology

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).
Why GAO Did This Study

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) Treasurys 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.

What GAO Found

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 Treasurys 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.

What GAO Recommends

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.