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Foreclosures in America matched their highest level on record at the end of 2010. That is the latest word from the mortgage industry, and it's frustrating to one of the nation's top financial watchdogs, Neil Barofsky. He's the special inspector general for TARP, the massive federal bank bailout program.

He is stepping down in March. And he says the administration's program to prevent foreclosures is broken.

NPR's Chris Arnold spoke with Barofsky about the program and about his time in Washington.

CHRIS ARNOLD: When Neil Barofsky took on the job of a watchdog, keeping tabs on the Treasury Department, he was shown to his new office at the Treasury building. Or, actually it was under the Treasury building. They gave him a mildewy office in the basement.

Mr. NEIL BAROFSKY (Special Inspector General, TARP): Over the course of a couple of months, there's this terrible smell that sort of permeated the office. I wasnt sure if was, oh, the Treasury is an old building. But I started to actually beginning to feel a little bit ill. So I finally did a complaint, and it turned out there was an open sewage drain right under that office. And we were literally breathing in raw sewage. It was quite a welcome to Washington.

(Soundbite of laughter)

ARNOLD: Thats not exactly rolling out the red carpet, I guess, uh?

But Barofsky was used to working in inhospitable places. As a U.S. attorney, he investigated drug cartels in Colombia. In Washington, in a new office, he's now built up a team of more than 100 auditors and white-collar criminal investigators. He's thwarted attempts to steal taxpayer money, but Barofsky says one part of TARP in particular has been a failure, and thats the Obama administration's foreclosure prevention plan.

Mr. BAROFSKY: I just fear is the one aspect of TARP that had the opportunity to have a really, really meaningful impact on millions of families, and it's something thats an opportunity that's lost.

ARNOLD: The Home Affordable Modification Program, as it's called, was supposed to help between three to four million Americans stay in their homes. These are not supposed to be people who acted recklessly or were flipping condos. But for people who do qualify, the program can lower their mortgage payments, and that can help both the homeowners and the investors who own the loans. But

Mr. BAROFSKY: We're not going to come anywhere close to that number.

ARNOLD: Over the past two years, the program has reached only 500,000 people. Now, the Treasury Department says, basically, hey, thats pretty good - half a million people get to stay in their homes.

But Barofsky says many times that many people are getting rejected from the program for the wrong reasons, and are getting foreclosed on when they shouldn't be.

Mr. BAROFSKY: There are so many people who are suffering. It is absolutely heartbreaking, the number of families that are not being reached by this program.

Ms. DEBORAH DAHLMER: I worry about my mom. Where would my mom go? She's 80 years old. Where would I go?

ARNOLD: Deborah Dahlmer in Gloucester, Massachusetts, is one of many homeowners that NPR has spoken with in recent stories. After her husband died, Dahlmer couldn't afford the payments on their modest house, but she seems to be a perfect candidate for the Making Home Affordable Program. She's legally blind and has disability income.

For more than a year, though, she says Bank of America has been losing documents that she faxes in. And she still doesn't know if she's going to lose her house.

Ms. DAHLMER: I'm told, by my doctor, to calm down because my blood pressure is skyrocketing from this. How can you help it?

ARNOLD: Barofsky says one of the program's big weaknesses is that, it's a government program but the banks decide who qualifies. And he says they improperly reject qualified people all the time, often after stringing them along for a year or longer.

Mr. BAROFSKY: You have people who come out of this with tons of late fees that they otherwise may not have been looking at, their credit ratings have been destroyed, their savings depleted. They're in a far worse place than they would have been, had this program not existed.

ARNOLD: But actually, in the end, Barofsky says the government didn't put the right incentives in place to really bring the banks on board.

Mr. BAROFSKY: This is a product of poor program design, of poor oversight by the Treasury Department, of poor execution of compliance. Treasury designed this program and its failings are its failings.

ARNOLD: For its part, the Treasury Department says it doesn't have the authority to force more compliance from the banks. But, Barofsky says, it should be asking Congress for more authority, if thats the case.

Meanwhile, Barofsky says not much is changing and more people are missing out on the chance to stay in their homes.

Chris Arnold, NPR News.

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