Oversight Panel Criticizes TARP Contracts

Posted by Orb Staff on October 15, 2010 No Comments
Categories : Mortgage Servicing

The U.S. Treasury Department's use of private contractors under the Troubled Asset Relief Program (TARP) was criticized in a report issued by the Congressional Oversight Panel (COP) Thursday. Although the COP found the Treasury has exceeded the ‘notoriously nontransparent’ standards of government contracting, significant transparency concerns remain, the panel said, characterizing contracts to Fannie Mae and Freddie Mac as particularly rife with potential conflicts of interest.

Under TARP, the Treasury had two ways to employ private agents: procurement contracts, which are common throughout federal government activities, and financial agency agreements. The Treasury is the only department that uses the latter agreements, under which private businesses perform ‘inherently governmental functions’ on behalf of the U.S., the COP explains. More than $215 million has been obligated to the government-sponsored enterprises (GSEs), representing the largest financial agency agreements made under TARP.

But the COP notes that, in addition to possible conflicts of interest, both companies ‘have fallen short in aspects of their performance.’ The GSEs were contracted to oversee the Making Home Affordable (MHA) foreclosure mitigation programs – Fannie in an administrative role and Freddie as a compliance agent.

The COP report depicts the GSEs' selection as MHA overlords as a rushed decision, and notes that while few viable options were available, ‘the extent to which the GSEs had the infrastructure, capabilities and resources is not absolutely clear given the amount of subcontracting they engaged in to help fulfill their responsibilities.’

Both companies were asked to perform tasks that fell outside their core competencies, the report says. The quality of Fannie Mae's MHA reporting has been called into question ever since Fannie Mae reported default rates under the Home Affordable Modification Program to be significantly lower than they actually were.

The initial report of default rates was challenged by analysts at Barclays Capital, causing the Treasury to correct the data and republish new data after data-validation efforts were undertaken by an independent third party.

‘The data error, which was highly visible and instrumental from a public-policy
perspective, suggests that there was a lack of adequate processes or systems in placeâ�¦at Fannie Mae to detect any mistakes, omissions, or discrepancies in data production,’ the report states.

The panel criticized Freddie Mac for having had difficulty meeting its assigned deadlines.

SOURCE: COP

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