WASHINGTON — The often-criticized government program to help homeowners avoid home foreclosures has reached its initial goal for modifying mortgages -- after the Obama administration started prodding banks in July to move more quickly in easing loan terms.
But it might be too little too late to stem the tide of foreclosures.
A government oversight report to be released today expressed doubts that the administration would reach its overall objective of preventing 3 million to 4 million foreclosures, much less keep many of those who modified their mortgages from losing their homes.
Federal officials said Thursday that the Making Home Affordable program reached its initial target of 500,000 trial mortgage modifications more than three weeks ahead of schedule.
The result indicated that despite their early sluggish response, banks and mortgage servicing companies could have pushed modifications through the program more aggressively since its launch in March, said Ken Stein, associate director of the California Reinvestment Coalition, an advocacy group for homeowners.
"They're improving and that's good, but the numbers are still insufficient," he said.
Industry officials, however, said banks already were modifying loans on their own -- about 2 million since late 2007 through the industry's Hope Now program -- and they pointed out that it took time for the government initiative to get up and running.
"This is a new program that had a lot of kinks," said Scott Talbott, the top lobbyist for the Financial Services Roundtable, which represents large financial institutions. "And now it is up to speed, and I expect the pace to continue."
But in a report today, the Congressional Oversight Panel monitoring use of government bailout money raised concerns about the effectiveness of the $75-billion Making Home Affordable program.
"It isn't clear the program in place will do enough to tame the crisis," said Elizabeth Warren, the panel's chairwoman. The report also questioned whether the modifications would put homeowners into "long-term stable situations."
Analysts echoed those worries, saying there's a long way to go to get those 500,000 homeowners into long-term restructured mortgages that they would be able to afford. And although the program is helping ease the foreclosure crisis, it's unlikely to end it.
"The [program] is kicking into a higher gear, but not high enough to forestall a continued increase in foreclosures and more house price declines," said Mark Zandi, chief economist at Moody's Economy.com.
Borrowers whose mortgages are modified tend to default on the new terms at a high rate, he said. Of the estimated 4.5 million homeowners in foreclosure or headed there with mortgages 90 days or more delinquent, the program ultimately will save only 1 million of them, Zandi predicted.
Obama administration officials said they understood that foreclosures continued to rise and intended to keep the pressure on mortgage companies. But they touted the improved participation in the program.
"We believe we are absolutely moving in the right direction and have reached an important turning point in our modification efforts . . . but we are nowhere near the finish line yet," Housing and Urban Development Secretary Shaun Donovan said.
Officials from HUD and the Treasury Department met Thursday with top mortgage servicers in Washington to discuss improving responsiveness to borrowers and the efficiency of the program.
The program was designed to ease foreclosures by helping struggling homeowners modify their mortgages, such as by cutting interest rates and extending the length of the loans. But government guidelines and other rules weren't released right away, and banks shied away from the program even after it was refined.
This spring, the government added cash incentives for borrowers and lenders to participate. And in July Donovan and Treasury Secretary Timothy F. Geithner pushed the chief executives of mortgage servicers to increase staffing, streamline application procedures and improve their customer response.
Geithner said the three-month trial modifications are being added at a faster rate than homeowners are becoming eligible for the program. Administration officials said that about 40% of the nation's estimated 1.2 million eligible homeowners were taking part.
The latest comprehensive data, as of Sept. 30, showed that JPMorgan Chase & Co. had modified the most mortgages, 117,196, followed by Bank of America Corp.'s 94,918 and Citigroup Inc.'s 68,248.
The pace of loan modifications has nearly doubled since the end of July. But the 487,081 trial modifications as of the end of September amount to just 16% of the eligible delinquent mortgages.