Yesterday, the Inspector General for TARP, who also oversees the Home Affordable Modification Program (HAMP), the Obama administration’s signature foreclosure prevention program, said that only $600 million of the $50 billion allocated to HAMP has been spent. And if it were up to Kentucky Republican Senate candidate Rand Paul, the rest of the money would be rescinded and struggling homeowners would be left on their own.

During a debate last night, Paul was asked if he would continue HAMP and whether the government should be trying to keep “deserving” borrowers in their homes. Paul first said that he would cancel the remaining funds for HAMP. When asked what would happen to borrowers who would lose one of their last viable chances at staying in their homes, Paul simply replied “nothing good”:

PAUL: I think that the TARP funds that are left should go to restore the deficit and to try and pay off debt. I think the TARP funds, the whole entire $800 billion should have never been spent…I would vote for any unused funds to go back to try to offset the deficit. [...]

Q: What’s going to happen to those people [who are underwater on their mortgages]?

PAUL: Well, nothing good. And it’s not something that makes any of us happy. I mean, it’s really a tragedy. But the tragedy really, if you want to think this through, is the bad policy by Barney Frank and others.

Watch it:

HAMP obviously has its problems, but they stem from the inability to get borrowers through the program successfully and the banks’ obvious foot dragging. These are design flaws that should be fixed. Paul, though, would simply give up and leave borrowers to the mercy of mortgage servicers who have shown no interest in creating sustainable mortgage modifications on their own.

Instead of advocating a way to actually help struggling borrowers stay in their homes — and thus prevent all of the negative consequences of a foreclosure on individuals and the surrounding neighborhood — Paul resurrected the conservative fiction that lending in traditionally under-served communities caused the financial meltdown. Paul blamed the Community Reinvestment Act for the country’s economic woes, a thoroughly debunked narrative, and refused to lay out any plan for helping distressed homeowners.

This position fits in with the rest of Paul’s ideology, which basically involves leaving people to the mercy of Big Business. But 100,000 foreclosures occurred last month alone, and there is a straightforward way to help struggling borrowers, if HAMP were streamlined and taken out of the hands of the banks.

For months now, the Obama administration signature foreclosure prevention program — the Home Affordable Modification Program (HAMP) — has been sputtering along, with more borrowers now getting booted out of the program than receiving a sustainable mortgage modification. In fact, many borrowers who enter the program wind up worse off financially, as the failure to obtain a permanent modification results in the borrower owing back fees and late penalties to the bank.

One of the biggest problems with the program is that the banks simply have no incentive to participate on a large scale, as they receive incentive payments for successful modifications but are subject to no repercussions for failing to keep qualified borrowers in their homes. Yesterday, the Special Inspector General for the Troubled Asset Relief Program (TARP), from which HAMP’s money comes, noted that just $600 million of the $50 billion allocated to HAMP has been expended, adding that “a program that began with much promise now must be counted among those that risk generating public anger and mistrust.”

Now, the program is designed to pay out incentives to mortgage servicers for every borrower that stays current over the next few years, so that would explain some of the delay. But it doesn’t explain why barely more than one percent of the money allocated to the largest Obama administration program meant to aid homeowners has actually been expended.

According to the latest data, which was released yesterday by the Treasury Department, about 466,000 borrowers have received permanent mortgage modifications under HAMP, while almost 700,000 trial modifications have been canceled. Another 30,000 people received a “permanent” modification, only to have it canceled. The program clearly needs some reworking.

And there are things that could be done to get more borrowers into sustainable modifications and to move the HAMP money out the door faster. For one thing, housing counselors could be given the authority to approve loan modifications, and if the banks don’t challenge the modification in three months, it would automatically become permanent. Paul Krugman wrote that such a move “would do a lot to clarify matters and help extract us from the [mortgage] morass.”

Yesterday, Paul Willen, a senior economist and policy adviser for the Federal Reserve Bank of Boston, said that recent anti-foreclosure efforts by the federal government have amounted to just “three years of failed policies.” “To prevent foreclosures we must pay lenders or borrowers a lot of money or force lenders to modify loans even when they don’t want to,” he said. “The idea we can go forward and all we need to do is tweak things a little or change a rule here or there or even change a lot of rules and give some incentive payments — that is not enough.”