Neil Barofsky, who oversaw the U.S. government’s Troubled Asset Relief Program (TARP) 10 years ago, said the Treasury Department failed homeowners during the financial crisis in 2008.
While former Treasury Secretary Hank Paulson and company were able to pull the financial industry back from the brink of a collapse, homeowners who faced declining property values and foreclosures got the short end of the stick.
“The biggest failure of Treasury when they rolled out TARP was not keeping their promise to Congress to help struggling homeowners,” Barofsky told Yahoo Finance. “People forget about it… but one of the ways TARP passed… was to include a promise to help struggling homeowners and Treasury never fulfilled that promise.”
TARP was the government’s program to purchase toxic assets and buy equity from financial institutions to counter the financial crisis and strengthen the financial sector. It was initially rejected by Congress, despite an 11th hour plea from Paulson, and was passed only after provisions were added to help homeowners refinance and re-tool their mortgages to prevent further foreclosures and bankruptcies. It was signed into law by President George W. Bush on October 3, 2008.
The Home Affordable Mortgage Program (HAMP), which was a major part of TARP, was designed to keep 4 million homeowners out of foreclosure. However, the program’s promise of loan modifications and refinancing only helped about 1.6 million people lower their payments and about one-third of those eventually fell behind on their payments, according to the Washington Post.
The failure was not for lack of funding, Barofsky said. Hundreds of billions of dollars was available and could have gone directly to help struggling homeowners who were being driven out of their homes, he said, but “Treasury just sat on that money and didn’t do it.”
Further, he said claims made by Paulson, former Treasury Secretary Timothy Geithner and others that more money could not have made its way to homeowners “demonstrably untrue.”
“There were hundreds of billions of TARP dollars that were never spent,” Barofsky said. “It was absolutely essential to save the banks. That money had to be used to save the banks or we would’ve been looking at an abyss that was far worse than what we experienced. But that doesn’t justify the failure of Treasury to use the TARP money to achieve the goals that it promised congress it was going to meet in order to get the money in the first place.”