TARP is failing to help homeowners

Friday, April 13, 2012 — A federal-state program aimed at helping homeowners in states hardest hit by the mortgage crisis is falling far short of its goals, a federal watchdog said in a report released Thursday.

In the report, the Special Inspector General for the Troubled Asset Relief Program (TARP) said that just 3% of $7.6 billion available in the Hardest Hit Housing Markets program — available for 18 states and the District of Columbia — had been tapped as of Dec. 31.

The money has gone to help 30,640 homeowners, or about 7% of the 458,000 homeowners officials estimated would be helped by the end of the program in 2017, according to the watchdog.

More than 75% of the program funds has gone to prop up state unemployment programs that pay mortgages of the unemployed — not efforts such as mortgage modifications or principal reductions that would force banks to take a hit, according to the report.

Christy Romero, the Special Inspector General for the Troubled Asset Relief Program, said the hardest hit fund has largely served to help the unemployed.

“It was supposed to be an innovative program intended to reach the unemployed and underwater homes,” Romero said in an interview with CNNMoney. “It is important to reach the unemployed, but it’s not reaching underwater homes like it was intended.”

Treasury defended the hardest hit program. The program gives states the opportunity to “leverage their unique understanding of the conditions in their communities to create effective, locally tailored programs,” Assistant Secretary for Financial Stability Timothy Massad said in a letter to Romero.

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TARP is the $700 billion bailout program that Congress passed at the height of the financial crisis in the fall of 2008. In addition to keeping the big banks afloat, TARP gave money to programs to help struggling homeowners.