Congressional Oversight Panel Report - HAMP Program and Conflicts of Interest

On October 14, 2010, the Congressional Oversight Panel released its October Oversight Report, Examining Treasury's Use of Financial Crisis Contracting Authority. This report reviews the use of private companies by TARP, which is a public program created by Congress to stabilize the American economy. Private companies were employed through procurement contracts and "financial agency agreements."

The report considers in detail the agreements with Fannie Mae and Freddie Mac for the Home Affordable Modification Program (HAMP) [page 75]. The report notes that the largest TARP financial agreements were those with Fannie Mae and Freddie Mac to provide administration and compliance services for Treasury's foreclosure mitigation programs. The report states that "these agreements raise significant concerns..." as [b]oth Fannie Mae and Freddie Mac have a history of profound corporate mismanagment...and both companies have fallen short in aspects of their performances..." [page 6]. The November, 2010 report is to pursue this topic further.

Dual Role

In February, 2009, Treasury entered into financial agency agreements with Fannie Mae and Freddie Mac to administer and enforce compliance with HAMP. The report notes that these roles are distinct from Fannie Mae and Freddie Mac's role as guarantors of the mortgages. Fannie Mae and Freddie Mac were placed into conservatorship on September 6, 2008 by the Federal Housing Finance Agency (FHFA). In connection with this conservatorship, Treasury agreed to provide financial support to Fannie Mae and Freddie Mac by way of certain preferred stock purchase agreements [fn. 310, page 76].

"Complicated Legal Relationship"

The report states that [e]ven though Fannie Mae and Freddie Mac have a complicated legal relationship with the government" as a result of having been placed into conservatorship, "they became the government's financial agents" for HAMP administration and compliance for the Treasury Department.

"Discussion of Conflicts of Interest"

The report notes actual or potential financial conflicts of interest of Fannie Mae and Freddie Mac with their duties owed to Treasury under HAMP. The Panel's prior report noted that the dual role - as "doers" of mortgage mortgage modifications for loans they own or guarantee and "overseers" of Treasury's mortgage modification program - "may present competing interests or diminish the overall effectiveness of Fannie Mae's and Freddie Mac's ability to modify mortgages, engage in HAMP administration or oversight, or both."

The report discusses the argument that this structural conflict is an "immitigable conflict because the interests are not aligned." [page 85].

"Conclusion"

The report concludes that the concerns raised "suggest that Fannie Mae and Freddi Mac are not performing satisfactorily under their financial agency agreements" for the HAMP program.