Hopes were over-inflated when Obama unveiled the program before an adoring audience of Arizona high school students last February. Almost a year later, it appears only about 750,000 homeowners — a fraction of the 3 million to 4 million originally projected — might complete the application process, predicts Mark Zandi, chief economist at Moody's Economy.com.
The more borrowers who can't be helped, the more foreclosed properties will flood the market. And that means the nation's housing market, which appeared to recover last summer, could soon take another turn for the worse.
A record 2.8 million households were threatened with foreclosure last year, up more than 20 percent from a year earlier, RealtyTrac Inc. reported this week. The foreclosure listing firm expects another record this year.
Home prices, meanwhile, are down 30 percent nationally from the peak in mid-2006, and there is mounting evidence they will fall again over the winter as low-priced foreclosures make up a larger proportion of sales.
"It's a very serious threat to the housing market, and still one of the most significant risks to the broader recovery," Zandi said.
The Obama plan aims to help borrowers in financial trouble by making their payments more affordable. Modifications made under the program include a lower interest rate and often a longer repayment period. The average monthly payment has been cut by $500 on average.
The homeowners receive temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the paperwork, including proof of income and a letter explaining the reason for their troubles.
However, just 66,500 borrowers, or 7 percent of those who signed up, have completed the program as of December, the Treasury Department said Friday.
An additional 49,000, or more than 5 percent, have dropped out of the program entirely — either because they missed payments or were found to be ineligible. Thousands more remain in limbo awaiting an answer.
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