Home rescue plan delaying, not solving crisis

By Nick Carey and Al Yoon

ALBANY, Ohio/WEST PALM BEACH, Florida (Reuters) - Within weeks of taking office, U.S. President Barack Obama rode to the rescue of homeowners resigned to financial ruin.

Obama, grappling with the worst U.S. housing crisis since the Great Depression, pledged to help as many as 9 million families keep their homes by reworking their mortgages.

Eight months later, the plan is plagued by delays, red tape and, some critics say, a reluctance by banks to do their part. Just 17 percent of eligible borrowers have had their loans modified and monthly payments cut. Hardly any have been given a cut in the amount they owe on homes which are now worth less.

That means many successful applicants are left with loans that they still will not be able to afford in the long run. So instead of resolving the housing crisis that pushed the U.S. economy into recession, America may be prolonging it and, in the process, stunting the global recovery.

"Every single policy we've seen has merely kicked the problem down the road," said Laurie Goodman, a veteran analyst at broker-dealer Amherst Securities Group LP, which specializes in residential mortgage-backed securities.

"But there is no easy solution to the underlying problems."

For homeowners like Jeff Latta, there was no help at all.

Latta, a 53 year-old retiree, pays $1,600 in monthly home payments that eat up 93 percent of his pension and he struggles to make child support payments.

To help pay his mortgage, Latta has slashed his bills by hunting for food in the wooded hills around his town of Albany in southern Ohio, and growing his own vegetables. He has resorted to selling pumpkins and firewood to make cash.

In March, Latta heard about Obama's Home Affordable Modification Program, or HAMP, that allows mortgage payments to be reduced to 31 percent of a homeowner's income.

The plan was launched as a central plank of Washington's efforts to stem foreclosures.

Latta applied for a loan modification but was rejected. His bank said his income from selling pumpkins and firewood -- a net of $906 in 2008 -- was too high.

"Frankly, I'm disappointed," Latta said. "I thought I would qualify as I am at high risk of default."

Foreclosure prevention advocate Bryce Burton at Ohio Housing Finance Agency said Latta's bank miscalculated his income. "Jeff is a shining example of someone doing everything they should be to keep their house," Burton said.

Nonprofit agencies say HAMP helps combat foreclosure but success varies from lender to lender.