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UPDATE 2-US mortgage aid rises, fails to cut foreclosures

* Loan modifications rise under Obama housing plan

* Program aids 25 pct of eligible delinquent borrowers

* Efforts not enough to stem foreclosure tide-analysts

* Treasury says will tweak program as needed (Recasts with comments from Treasury official, analyst)

By David Lawder

WASHINGTON, Jan 15 (Reuters) - The U.S. Treasury on Friday pledged to improve its housing rescue program after new data showed a slightly greater percentage of borrowers with delinquent mortgages had received help with loans through the end of December.

Borrowers with active payment reductions in the Home Affordable Modification Program rose to 853,696 at the end of December from 728,408 a month earlier, Treasury said in its latest monthly report on the program’s performance.

The trial and permanent modifications reached 25 percent of eligible mortgage delinquencies of 60 days or more among 23 mortgage servicers in the program. That compares to 24 percent at the end of November.

“It’s marginal progress,” Washington, D.C.-based mortgage industry consultant Howard Glaser said of the results.

“It’s helping the borrowers who have received the modifications, but systemically, the program is insignificant,” added Glaser. “With the wave of foreclosures ahead, it’s kind of like fighting a forest fire with a squirt gun.”

Mortgage foreclosure notices rose 21 percent in 2009 to a record 2.8 million according to RealtyTrac. The property data firm predicts a new record of 3 million such filings in 2010 and the industry expects a high foreclosure rate for years to come.

Michael Barr, the Treasury’s assistant secretary for financial institutions, acknowledged disappointment with results from some individual servicers, and said Treasury would consider appropriate tweaks to make the program more effective.

“We believe there is much more work to be done to stabilize the housing market,” Barr told reporters on a conference call. He did not discuss specific steps under consideration.

The latest report showed permanent mortgage modifications -- for borrowers who have met all documentation requirements of trial payment reductions -- more than doubled to 66,465 by year-end from 31,382 at the end of November.

Documentation, including income and assets, has been hampered by job losses and processing bottlenecks at the servicers, which collect monthly mortgage payments.

Those with fully permanent modifications represent only about 7 percent of the 902,620 trial modifications that have been started. The Treasury said another 46,056 permanent modifications were awaiting borrower signatures, which would raise the percentage to about 12 percent.

Barr noted that the recession has also hurt the conversion rate for permanent modifications. About 25 percent of those in the trial stage have not made all of their monthly payments.

The Treasury in recent months has leaned on the servicers to speed the pace of modifications.

CitiMortgage C.N and GMAC, two major recipients of government bailouts, were among companies with the highest percentage of delinquent borrowers receiving modifications -- 47 percent and 44 percent respectively. Franklin Credit Management Corp. was the lowest performer, with no active modifications, while modifications at several firms were in single digit percentages of their eligible borrowers.

In December, the percentage of modifications that were canceled due to non-payment or failure to meet documentation requirements rose to 5 percent of total modifications started versus 4 percent in November.

When the Treasury announced the modification program in February 2009, it set a goal of 3 million to 4 million modifications -- a figure that many housing analysts say will not be enough to speed recovery in the troubled sector.

The Treasury said over 850,000 homeowners participating in the program are now receiving a median reduction of over $500 a month in mortgage payments, which has produced cumulative savings of over $1.5 billion. (Reporting by David Lawder; Editing by Andrew Hay)

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