U.S. housing chief says aid plan needs fix

WASHINGTON (Reuters) - A $300 billion federal program meant to prevent foreclosures is doing almost nothing to aid U.S. homeowners, but it could become effective if Washington slashes cumbersome red tape, the nation's top housing policymaker said on Monday.

At issue is the Hope for Homeowners program created by Congress in July to help 400,000 troubled homeowners secure a new loan.

The program has aided fewer than 1,000 borrowers since it began in October and it is a flop with both lenders and borrowers discouraged by its excessive costs and paperwork, said Housing and Urban Development Secretary Steve Preston.

"This program has not had any relevant impact yet," he told Reuters in an interview.

"It is a tiny trickle," Preston said of the volume of loans pushed through the program. "Hope for Homeowners would reach a lot more people if the fees were to come down somewhat and if we were to simplify some of the administrative requirements."

Preston was confirmed by the Senate in July and will step down next week when President-elect Barack Obama moves into the White House.

While he has controlled the country's top housing agency for less than seven months, Preston has been the key administrator of the Hope for Homeowners program that he says has a near-impossible mandate of rescuing a large share of troubled borrowers while shielding taxpayer money.

As originally written, the housing rescue bill required mortgage companies to write down the loan by 10 percent and homeowners could have to share future home price gains with the federal government.

"Congress designed a program with the best intentions in mind," Preston said. "There is a logic behind it. You can see why Congress wrote it this way."

Still, he said, the program's safeguards have made it all but ineffective.

In November, Preston eased some of the write-off requirements for lenders who wanted to offload mortgages through Hope for Homeowners, but he said more reform is needed.

Democrats who control Congress and the Obama transition team both seem to understand that the Hope for Homeowners program has serious flaws, Preston said, and they seem prepared to fix them.

Still, Preston warned policymakers not to relax lending standards to the point where the government begins to underwrite excessive risk.

(Editing by Mohammad Zargham)