WASHINGTON — Less than 10% of homeowners receiving help through the Obama administration's main foreclosure prevention program have received permanent modifications, as officials acknowledged Friday the efforts by some banks were "disappointing."
"We believe there is much, much more work to be done to make sure the program is running right," said Michael Barr, the Treasury Department's assistant secretary for financial institutions.
The administration said in a report that the Home Affordable Modification Program, which gives borrowers a three-month trial period to successfully pay for a modified loan, has resulted in roughly 66,000 permanent loan modifications through the end of December. That figure represents about 7% of the more than 900,000 trial periods started since the program's inception.
"We need to pick up the pace of permanent modifications," Barr told reporters during a conference call. Collecting the documents needed to process a permanent loan change was a major impediment, he said.
Getting eligible borrowers to make all their trial payments has also proved difficult: Barr said a quarter of borrowers involved in trial modifications have not made some or any of the required payments.
Officials still said they saw signs for optimism. The volume of active trial and permanent modifications rose in the third quarter, and more than 46,000 permanent modifications were pending, waiting for borrowers to sign the paperwork.
The updated data "demonstrates that there has been a significant acceleration in the rate at which borrowers are being approved for permanent modifications," Treasury said in a statement.
The report is unlikely to quell criticism of the program, which has been faulted because of its slow pace and the low number of modifications that have been made permanent. Housing advocates have said loan servicers need to be more willing to lower the principal on struggling borrowers' mortgage loans, but lenders have usually turned to interest rate reductions to modify loans.
John Taylor, president and CEO of the National Community Reinvestment Coalition, said the results were "humorously small."
"Tough talk and action on bonuses and repayment of bailout funds should be accompanied by a stronger response on foreclosure prevention," he said in a statement.
The administration's report said that all of the permanent modifications made through the Hamp involve interest rate reductions, while only 27% involved principal forbearance. Phyllis Caldwell, chief of Treasury's Homeownership Preservation Office, told reporters that the majority of cases involving principal forbearance did not include a permanent reduction in how much borrowers owed.
The Obama administration, aware of the criticism, last month started reviewing the program to ensure that borrowers were being fairly evaluated for eligibility in the program. That review concludes at the end of January.