If one had to select two contractors to run and enforce compliance measures for a loan-modification program meant to ameliorate the effects of the housing-market collapse, Fannie Mae and Freddie Mac would be among the last organizations most taxpayers would trust with that task. They ended up with the job of administration and enforcement of the “Home Affordable Modification Program” anyway, and botched the job, as a whistleblower reported to the Center for Public Integrity last year. Now Bloomberg Government reports that the Obama administration gave Fannie and Freddie the job of cleaning up the mess they created in a no-bid contract, as Danielle Ivory reports (via Desmond L, subscription only):

Three years after Fannie Mae and Freddie Mac were saved from bankruptcy by taxpayers at a cost of more than $160 billion, the government-run enterprises have captured more than $400 million in contracts from the same department that bailed them out. The companies were awarded, without competition, 58.5 percent of the $698 million in contracts and financial agent agreements made under the Troubled Asset Relief Program, according to data disclosed to Bloomberg Government by the Congressional Oversight Panel on the U.S. government’s bank bailout. Fannie Mae and Freddie Mac were selected in 2008 by the Treasury Department to administer and enforce compliance for the Home Affordable Modification Program, or HAMP, which helps financially strapped homeowners meet their mortgage payments. The department determined that no other companies had the infrastructure to operate a foreclosure mitigation program on a national scale. The Congressional panel said that both companies had a conflict of interest by helping refinance billions of dollars in mortgages that they either held or guaranteed.

The 2008 date will create some confusion, as the Obama administration launched HAMP in February 2009 and has repeatedly asserted ownership of the program. Ms. Ivory informed me in a follow-up e-mail that the Treasury determined in late 2008 that Fannie and Freddie were the only organizations that could handle a massive loan-modification program. The contracts were not awarded, however, until after the Obama administration launched HAMP in 2009.

In any event, the Obama administration through Treasury gave Fannie and Freddie more than $408 million in no-bid contracts. A year later, the same administration bragged that it had reduced spending by 10 percent on no-bid contracts:

The U.S. government cut the amount it spent on contracts that are awarded without competitive bidding by 10 percent during the first half of fiscal 2010, boosting efforts to reduce costs, the White House said. Spending on those “no-bid” contracts was reduced by $2 billion, and the amount that went to agreements based on contractors’ costs instead of predetermined prices was cut by 6 percent, or about $500 million. “By reducing the use of these high-risk contracts we’re making contractors more accountable and saving taxpayer dollars,” Jeffrey Zients, the Office of Management & Budget’s chief performance officer, said in an interview.

Really? How did it work out for borrowers and taxpayers in putting Fannie and Freddie in charge of HAMP without allowing other firms to make the case that they could do the work without the GSEs’ inherent conflicts of interest? The Congressional panel’s report notes the “obvious conflicts of interest” that occurred when Fannie and Freddie both ran the program and also used it for loan modification — accounting for 53% of the modifications through HAMP. Do they all comply with HAMP and TARP regulations? The self-regulating Fannie and Freddie insist they do.

One potentially explosive revelation comes from the “robo-signer” scandal that has threatened the processing of numerous foreclosures. Fannie and Freddie decided to forego penalties on lenders who used robo-signers, which courts have ruled insufficient, because they get a lot of money from those lenders. Senator Ted Kaufman (D-DE) blasted the move:

“We wanted Fannie and Freddie to be tough on these companies,” Kaufman said. “How much can they police the HAMP program if they are worried about their relationships with these servicers? That’s a pretty egregious conflict right there, and they just stood up and told us that.”

Treasury insists that they have put enough firewalls in place to ensure that its HAMP administration remains “separate and distinct” to avoid the appearance of conflict. The Bloomberg report shows that it’s anything but. The Obama administration put the incompetent foxes in charge of the henhouse, and the results speak for themselves.