Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (SIGTARP), called for the Department of Treasury to utilize appraisals for the Home Affordable Modification Program to protect against fraud. Barofksy’s comments came during April 20 testimony before the Senate Finance Committee, and are highlighted further in a quarterly report issued to Congress.

Citing concerns that inferior methods of valuation could lead to fraud, Barofsky told lawmakers, “Treasury should abandon its differing valuation standards across HAMP and adopt the Federal Housing Authority`s appraisal standard for all HAMP principal reduction and short sale programs.”

Richard Maloy, MAI, SRA, chair of the Appraisal Institute’s Government Relation Committee, said the change would allow the Treasury Department to avoid conflicts and enhance due diligence in these increasingly used modification programs. “Today’s real estate market challenges and complexities of loan modifications beg for competency and independence provided by professional real estate appraisers,” Maloy said. “We urge the Department of the Treasury to implement this sound recommendation to reinforce a common sense due diligence requirement.”

In a quarterly report, also released April 20, SIGTARP said it may be in the best interests of the economy for the White House to force lenders to make principal reductions for struggling homeowners who owe more than their home is worth.

In March, the Obama administration announced substantial changes to HAMP, in which lenders who help write down principle for underwater mortgages will receive government subsidies. But as Reuters recently reported, that program is voluntary and can only be successful in situations where banks participate to team with homeowners.

The SIGTARP report noted that allowing mortgage servicers the opportunity to opt in or out of the HAMP program made it inconsistent. As such, they recommend that Treasury “re-evaluate the voluntary nature of its principle reduction program and, irrespective of whether it is discretionary or mandatory, Treasury should consider changes to better maximize its effectiveness,” the SIGTARP report stated.

“Until the Treasury fulfills its commitment to provide a thoughtfully designed, consistently administered, and fully transparent program, HAMP risks being remembered not for catalyzing a recovery from our current housing crisis, but rather for bold announcements, modest goals, and meager results,” according to the report.

Of primary concern to SIGTARP is that since HAMP’s rollout the home foreclosure crisis has not abated. According to the SIGTARP report, nearly 2.8 million foreclosures were initiated in 2009. More ominously, this year is on pace to be even worse – with more than 932,000 foreclosure filings already recorded during the first quarter of 2010.

The Treasury has said it will comment on SIGTARP’s recommendations to its principle reduction program in mid-May – after 30 days to analyze the watchdog’s findings.

To read Barofsky’s full testimony, visit http://finance.senate.gov/hearings/hearing/?id=bc66e07e-5056-a032-5230-8f0a007f3611 . To view SIGTARP’s latest quarterly report to Congress in its entirety, visit www.sigtarp.gov/reports/congress/2010/April2010_Quarterly_Report_to_Congress.pdf .