WASHINGTON -- The Obama administration's flagship mortgage-relief effort is failing to ease the foreclosure crisis as more than half of those who have enrolled have fallen out of the program.
As of August, approximately 680,000 homeowners who applied to get their mortgage payments lowered, or about 51 percent, have been disqualified, the Treasury Department said Wednesday. That's up from about 48 percent in July.
The report gives ammunition to critics who say the program has failed to slow the tide of foreclosures. They say it's better to let troubled homeowners lose their homes and home prices fall.
"The problem is just so huge in magnitude that there's no viable solution that can come out of the government to solve it," said Anthony Sanders, a finance professor at George Mason University.
About 2.5 million homes have been lost to foreclosure since the recession started in December 2007, according to RealtyTrac Inc. And another 3.3 million homes could be lost to foreclosure or distressed sale over the next four years, according to Moody's Analytics.
Foreclosures and distressed sales are a major reason the economy has struggled to regain its footing after the recession ended in June 2009. They have forced down home values and battered housing markets in many parts of the country.
Homebuilders have struggled to compete with the deeply discounted prices. Potential sellers of existing homes have also been too discouraged to list their homes for sale.
The Obama administration had grand hopes for its relief effort in February 2009. At the time, officials said the government could help up to 4 million homeowners lower their mortgage payments to help avoid foreclosure.
Yet as of last month, only about 449,000 borrowers have received permanent loan modifications and are making their payments on time. That's only 34 percent of the 1.3 million who enrolled.
The administration's effort has been plagued by problems.
Banks weren't prepared for the volume of calls from borrowers and were slow to process their requests for help.
And the Treasury Department initially allowed banks to sign up borrowers without collecting proof of their income. In the end, many homeowners were unable to provide that information or simply gave up when the process became too bureaucratic.
Borrowers are now required to provide proof of their incomes at the start of the process. As a result, the number of people enrolling has dropped dramatically. Fewer than 18,000 new borrowers signed up last month. That's a far cry from last year, when more than 100,000 were enrolling each month.
Many homeowners have concluded that walking away from their mortgages made more sense than waiting for help.
Obama officials say most borrowers who exit the program are not headed for foreclosure because many ultimately get help from their lenders. Still, they say they are not ruling out expanding or reworking the government's housing efforts.
"We're certainly not going to stop fighting to turn things around," said Raphael Bostic, an assistant secretary at the Department of Housing and Urban Development.
But some housing experts doubt there's much more the government can do. The Obama administration may tweak its existing programs, but is unlikely to make dramatic changes, said Howard Glaser, a Washington-based mortgage industry consultant and official during the Clinton administration.
"There really is no federal policy approach that is going to have a significant impact," Glaser said.
Others say the economy is too fragile to give up. In recent weeks, Wall Street economists and academics have suggested the government could back the refinancing of all homes with mortgages backed by Fannie Mae, Freddie Mac or other government entities. Christopher Mayer, a real estate professor at Columbia Business School, said that could benefit about 37 million homeowners.
"Why not help a much broader group of consumers, not just people who are in trouble," Mayer said.
And others say the Treasury Department could do a lot more to enforce the rules of its existing program.
Alan White, a law professor at Valparaiso University, said the Treasury should be more aggressive about punishing mortgage companies that are doing a bad job of modifying loans. One way to do so, he said, would be to transfer many loans to companies that are performing better.