In his political epitaph as he leaves the program, Barofsky acknowledges in an op-ed in today's NY Times that though it seems almost universally a fact that the extremely controversial legislation has been effective, at least according to most folks in Washington (such as economics writer Robert Samuelson in his most recent column), it actually has failed on some of its lesser known goals, such as protecting home values and preserving homeownership.
These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken into account. Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.
The acts emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.
But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasurys plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nations largest financial institutions, a shift that came with the express promise that it would restore lending.
Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds. It was only in April of last year, in response to recommendations from our office, that Treasury asked banks to provide that information, well after the largest banks had already repaid their loans. It was therefore no surprise that lending did not increase but rather continued to decline well into the recovery. (In my job as special inspector general I could not bring about the changes I thought were needed I could only make recommendations to the Treasury Department.)
Meanwhile, the acts goal of helping struggling homeowners was shelved until February 2009, when the Home Affordable Modification Program was announced with the promise to help up to four million families with mortgage modifications.
That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000). This is the well-chronicled result of the rush to get the program started, major program design flaws like the failure to remedy mortgage servicers favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines. As the program flounders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the programs lifetime.
The St. Pete Times writes this morning that though home prices continue to fall in the Bay area, sales of existing homes increased by 24 percent last month, an increase of 16 percent from a year ago, indicating that prices are "stabilizing." Pardon us if we remain a bit skeptical about that. Don't forget that just a week ago it was reported that the Tampa Bay area ranks 9th in the nation in the length of foreclosures.