WASHINGTON, June 3 President Barack Obama's plan to refinance mortgages for as many as 9 million troubled homeowners is off to a slow start due to government bureaucracy and the challenge of unwinding Wall Street's bad mortgage bets, a U.S. housing official said on Wednesday.
Obama announced the housing rescue plan in mid-February but officials are still signing up mortgage finance companies to participate and collecting paperwork from troubled homeowners in search of help, said James Lockhart, director of the Federal Housing Finance Agency.
"Borrowers are required to submit the required documentation, be approved for a modification, and successfully perform under a three-month trial," Lockhart told a congressional panel as he outlined some steps that a troubled borrower might face before getting mortgage relief.
The Obama housing plan goes further than past efforts to aid distressed homeowners because it targets both delinquent borrowers and those who could simply use some financial relief. But officials are still racing to save borrowers.
Lockhart, the chief regulator for housing finance companies Fannie Mae and Freddie Mac, told a U.S. House of Representatives' Financial Services subcommittee that one part of the program that would pay mortgage companies cash to reduce a borrower's payments to 31 percent of their income would not see significant results until "current activities ramp up in late summer."
The Obama administration has tapped Fannie Mae and Freddie Mac to coordinate the bulk of the housing rescue but they have only been able to reach a small faction of troubled borrowers.
Fannie Mae and Freddie Mac control 30.4 million home loans, but they have been able to steer less than 9,000 troubled borrowers towards an emergency sale that avoids foreclosure, Lockhart said. In the first three months of the year, the companies foreclosed on 41,264 properties, he said.
One in every 374 homeowners who carry a mortgage balance -- a record 342,000 households -- received a foreclosure notice in April, the real estate research firm RealtyTrac said last month.
"These programs are not anywhere close to answering the crisis," National Community Reinvestment Coalition President John Taylor told Reuters by telephone.
Officials can rewrite the terms of troubled home loans that they control through Fannie Mae, Freddie Mac and other housing agencies, but they have trouble reaching the many mortgage investments created by Wall Street during the five-year housing boom that are outside their control.
Lockhart said the modification program that stresses affordability is "especially challenging" because it primarily targets loans that have passed through Wall Street and have been sold to investors. Fannie Mae and Freddie Mac will permit some borrowers to refinance into cheaper loans under the other key housing-rescue program.
The Obama administration has promised to spend up to $275 billion to spur mortgage modifications and while consumer advocates have welcomed such efforts, some say that more needs to be done.