Published: Apr 20, 2010 1:15 PM EDT

      WASHINGTON (AP) - Recent changes to the Obama administration's
mortgage assistance program may make it more vulnerable to fraud, a
government watchdog says.
      The changes, announced last month, are intended to make it
easier for struggling homeowners to avoid foreclosure. But the
administration hasn't done enough to warn the public about fraud
and hasn't included sufficient safeguards to prevent abuse, the
special inspector general for the Troubled Asset Relief Program, or
TARP, said.
      "Criminals feed on borrower confusion, and frequent changes to
the programs provide opportunities for experienced criminal
elements to prey on desperate homeowners," inspector general Neil
Barofsky wrote in a quarterly report issued Tuesday.
      Last month, the Treasury Department revised the $75 billion
mortgage assistance program it first rolled out last year. It is
intended to prevent 3 million to 4 million home foreclosures by
encouraging mortgage lenders to lower monthly payments.
      So far only about 170,000 homeowners have qualified for mortgage
modifications and critics charge the effort isn't making much
headway. In a report last month, Barofsky's office said that a lack
of planning and shifting rules on who qualifies has slowed the
program's progress.
      In response to the criticisms, the administration made several
changes. Mortgage lenders will receive incentive payments if they
reduce the amount borrowers owe. That would help homeowners with
mortgages larger than their homes are worth - a situation known as
being "underwater."
      In addition, unemployed homeowners can get their mortgage
payments cut to 31 percent of their income for three to six months.
      In his report, Barofsky called the changes "a potentially
important step forward for homeowner relief."
      But, while the changes were announced "with great fanfare,
little was done at the time to warn borrowers" about potential
fraud, the report said.
      The administration's existing program has already spawned
fraudulent schemes, the report said, such as one in which borrowers
are tricked by "thieves" into paying upfront for modifications
that never materialize.
      Under the changes announced last month, Treasury isn't requiring
appraisals to determine a home's value in cases where mortgage
principle is reduced, the report said. That could make it easier
for mortgage lenders to fraudulently qualify for incentive
      Treasury should instead follow the Federal Housing
Administration's guidelines, which require the use of an
FHA-approved appraiser, the report recommended.
      "No program of this type and scale can be considered
well-designed without robust protections of taxpayer funds against
the predation of criminals," the report said.
      In response, Treasury Department officials told the inspector
general they will soon initiate a public service campaign warning
against fraud. Treasury officials didn't respond to the
recommendation that the FHA's guidelines should be followed.