The Treasury Department said Wednesday that as of last month, about 116,000 homeowners had completed the application process and had their loan payments reduced permanently. That compares with more than 1 million homeowners who started the process.
More than 61,000 homeowners have dropped out, either because they failed to make payments or didn't return the necessary paperwork. And hundreds of thousands more are likely to fall out soon, predicts Alan White, a law professor at Valparaiso University.
"I would say it's a complete failure at this point," White said.
Treasury officials, however, say the program is on track. The plan "is doing the job it was designed to do," Phyllis Caldwell, chief of the Treasury's homeownership preservation office said in a statement. "Struggling families are receiving payment relief, and the housing market is showing signs of stabilization."
However, large banks continue to struggle with a huge volume of borrowers needing help. As of last month, Bank of America Corp. had completed modifications for just more than 5 percent of the roughly 240,000 borrowers who started the process. JPMorgan Chase & Co. and Citigroup Inc. were also below 10 percent.
The government "massively overestimated the ability of the (mortgage) industry to roll out a new program with a lot of paperwork," said Thomas Lawler, a housing economist in Virginia.
By contrast, companies that are trying to process tens of thousands rather than hundreds of thousands of loans are faring better. Ocwen Financial Corp. had completed modifications for nearly half of the 14,000 borrowers it signed up. GMAC Mortgage completed the process for a third.
There have been growing calls in recent weeks for an overhaul of the program, particularly for the government to do more to encourage banks to cut borrowers' principal balances on their primary loans. Nearly one in every three homeowners with a mortgage owes more to the bank than their property is worth, according to Moody's Economy.com.
But administration officials are wary of subsidizing such reductions with taxpayer money. Such a move could spark a backlash from critics who claim it's unfair to people who are still paying their mortgages on time.
Supporters, however, say the administration should get credit for trying to light a fire under an industry that wasn't accustomed to assisting defaulted borrowers in huge numbers and resisted change. The administration "had a Herculean task," said Sheila Bair, chairman of the Federal Deposit Insurance Corp. "People need to give it time."
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