WASHINGTON (Reuters) - An Obama administration program to help struggling homeowners modify their mortgages is not moving fast enough to keep up with the growing number of foreclosures, a U.S. congressional watchdog said on Wednesday.
And even if borrowers are helped in the short-run, many troubled borrowers will likely end up re-defaulting on their new loan down the road, said a report released Wednesday by the Congressional Oversight Panel of the Troubled Asset Relief Program.
“The re-defaults signal the worst form of failure of the HAMP program: billions of taxpayer dollars will have been spent to delay rather than prevent foreclosures,” the report said, referring to the Obama administration’s $75 billion Home Affordable Modification Program.
The panel noted that 2.8 million homeowners received a foreclosure notification last year.
Weakness in the housing market and high unemployment continue to weigh on the U.S. economic recovery, though consumer confidence itself is growing.
The White House announced major changes to its homeowner assistance program last month, expanding it to include incentives for borrowers who temporarily suspend payments to unemployed workers.
Among the changes were subsidies for lenders to write-down some principal from the loan for borrowers who owe more than their home is worth.
The panel, which had advocated those measures in an earlier report, praised those moves but said they are likely to be too late.
“Foreclosures prevented by HAMP will still likely be eclipsed by the number of actual foreclosures filed in any given year of the program’s existence,” the report said.
Treasury spokeswoman Meg Reilly said the program’s progress has already exceeded the figures used in the report.
As of the end of March, the HAMP program has 1,008,873 total active modifications, including 227,922 modifications that have been made permanent, according to a report released Wednesday. That’s up from 1,003,902 total modifications and 168,708 permanent modifications through February.
The administration has said it hopes to help 3 to 4 million homeowners by 2012,though the watchdog said “the goal itself seems small in comparison to the magnitude of the problem.”
The report said it is too soon to say for certain how many borrowers would end up re-defaulting, though it called the existing data “worrisome.”
The panel predicted Treasury would only prevent about 276,000 foreclosures, or less than 4 percent, of the 6 million loans that are behind on payments by 60 days or more.
“When the total picture of HAMP is taken into account, low conversion rates plus potentially high redefault rates mean that the total number of sustainable, permanent modifications generated by HAMP will be quite limited,” the report said.
Editing by Theodore d'Afflisio