Quarter in U.S. foreclosure plan late on payments

A foreclosed home is seen in Bullhead City, Arizona, in this November 4, 2009 file photo.

WASHINGTON (Reuters) - More than one-quarter of homeowners receiving help under a U.S. government foreclosure prevention plan are behind on their new mortgage payments, a Treasury Department survey has found.

Some 650,000 borrowers are participating in the trial phase of the Obama administration's Home Affordable Modification Program, a $75 billion taxpayer-financed program launched this year.

Most home loan modifications result in lower monthly payments, although some lead to reduced principal on mortgages.

Trial modifications were initially for three months, but the Treasury added 60 days, effectively making them last five months.

Homeowners must submit more detailed documentation before they can have their loan modifications made permanent.

A Treasury Department survey of large mortgage servicers found "over 73 percent of borrowers are current in their trial plan payments," Assistant Treasury Secretary Herbert Allison told a congressional oversight panel.

That leaves about 27 percent who are delinquent on the payments.

Allison provided written answers to questions raised at an October hearing before the Congressional Oversight Panel, which monitors the government's foreclosure prevention plan and other financial rescue efforts.

Allison said that "while not all eligible borrowers will convert to permanent modifications, it is too early to estimate a failure rate, diagnose causes and predict future success rates."

Experts say the conversion rate to permanent loans is the key to determining the program's ultimate success or failure.

The Treasury has not published figures on how many trial loan modifications have been made permanent, but it said it will start doing so this month.

The next monthly report on the program will be released next week, Treasury Department spokeswoman Meg Reilly said.

This week Treasury officials threatened to fine mortgage lenders unless they speed efforts to give hard-pressed homeowners a permanent break on monthly payments.

According to a report from the congressional oversight panel, only 1,711 permanent mortgage modifications had been offered as of September 1, an indication of how reluctant banks seemed to move beyond trial offers.

(Reporting by Lisa Richwine; Editing by Xavier Briand)