[Update 2: Treasury Assistant Secretary for Financial Stability Tim Massad responds]
The Hardest Hit Fund, which was launched by the Treasury to help families in areas stricken by the housing bust, fell short of its stated goals, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) warns.
Christy Romero, inspector general for TARP, sent an update to Congress, criticizing the handling of the Hardest Hit Fund and the toxic corporate culture still festering within certain banks.
The Hardest Hit Fund started with ambitious goals, SIGTARP says, but ineffective barometers and metrics prompted states receiving the funds to substantially lower their goals.
However, Tim Massad, assistant secretary for financial stability at Treasury, said the states are innovating as they go. It also took some time to get these locally run programs up and running, Massad told HousingWire.
State housing finance agencies received billions of TARP funds to assist local homeowners and communities back in 2010. In all, the Treasury allocated $7.6 billion to 18 states and the District of Columbia.
The plan was formulated in 2010. However, as of June 30, 2013, states had spent only 22%, or roughly $1.7 billion of the $7.6 billion in TARP funds allocated through the Treasury, SIGTARP said.
Approximately 146,356 program participants have received aid, or roughly 27% of the original goal.
In response to the 22% figure, Massad said "the amount of disbursed funds is accurate, but you can also look at committed funds."
Massad said many borrowers obtained commitments to receive disbursements over time. This means the 'spent funds' figure excludes some of the money already slated to help these borrowers. "Committed funds are a little over one-third of the total," he said, which is higher than the 22% reported by SIGTARP.
Rhode Island, Oregon and Washington D.C. spent the largest percentage of their HHF funds, reaching distribution rates of 56%, 48% and 46%, respectively. Arizona and Indiana fared the worst, spending only 8% and 11%.
The SIGTARP report claims the program’s effectiveness lessened over time.
In 2011, state agencies estimated the funds could help as many as 546,562 homeowners. Since then, that goal has been lowered by roughly 33%.
But when calculating the number of borrowers aided, it's difficult to judge progress, Massad suggested.
For example, certain housing markets have improved since then, forcing the agencies to assist local markets in other ways outside of borrower outreach. As housing markets improve, it's possible fewer borrowers are requiring direct aid, and the money is being spent on other housing-related items such as home demolitions in troubled communities, Massad explained.
This is not the first time SIGTARP has raised questions about the handling of the HHF funds.
SIGTARP released a report titled "Factors Affecting Implementation of the Hardest Hit Fund Program" in 2012. At the time, SIGTARP advised the Treasury to set more measurable and meaningful performance goals and to instruct state housing finance agencies to establish clear standards with local metrics to track progress.
SIGTARP added, "Treasury rejected SIGTARP’s recommendations."
However in a recent blog posting, the Treasury said it continues to work on its HHF program. Treasury told the public it "has worked with participating states to identify barriers to program success and make appropriate changes so programs continue to grow."
For the twelve-month period ended June 30, 2013, the number of homeowners aided through the program more than doubled to 126,858 from 58,519, while fund disbursements grew by 200%, the Treasury points out.
Romero’s update to Congress also covers the toxic corporate culture at certain banks, which persists five years after the financial crisis.
"The financial system has stabilized in part due to five years of the TARP bailout, but the toxic corporate culture that led up to the financial crisis and TARP has not sufficiently changed," Romero asserted in her update.
The oversight group recommends real consequences for breaking the law, including prison time when warranted.
Romero says 65 individuals ended up in jail for crimes investigated by SIGTARP. Currently, 112 individuals have been convicted and await sentencing, and another 154 have been criminally charged and face upcoming trials. About 60 in the banking community lost the ability to work in financial services.
Romero tells Congress the numbers highlight an important corporate issue: the need to foster an ethical culture that does not become a breeding ground for crime.
The chief causes of fraud and mismanagement include CEOs actively engaging in the fraud and ineffective or complacent corporate boards, according to Romero.
"Law enforcement is but one effective method to change a corrupt culture at an institution, but by the time we are investigating, it is often too late to change culture," SIGTARP concludes. "To fully address the corporate culture that led to TARP, companies must change from within. They must adopt a culture of vigilance, with strong board and management oversight—one that curbs risk and greed to the point where the company can absorb its own losses without coming to taxpayers hat in hand again."
