Obama's mortgage relief program gaining traction

By Lisa Fleisher

September 09, 2009, 11:06AM

The Obama administration's $50 billion mortgage relief program is finally picking up speed after a sluggish and disappointing start: Nearly one in five eligible homeowners have been offered help so far, the Treasury Department said today.

The "Making Home Affordable" plan, launched with great fanfare in March, had been slow to get going, but more than 571,000 loan modification offers, or 19 percent, have been sent to nearly 3 million eligible homeowners. That's up from 15 percent at the end of July.

Of those, more than 360,000 borrowers have signed up for three-month trial modifications, which are supposed to be extended for five years if the homeowners make their payments on time.

"There are signs the plan is working," Michael Barr, assistant Treasury secretary for financial institutions, said at a House hearing. "But we can do better."

Treasury says 48 mortgage companies are now involved in the program, up from 38 in July. The companies have requested financial information from almost two-thirds of eligible borrowers and say they are on track to have 500,000 loan modifications in place by Nov. 1.

Nevertheless, lawmakers are frustrated that help has not arrived quicker, especially as foreclosures continue to surge.

"I am disappointed at the pace of this program," said Rep Barney Frank, D-Mass., chairman of the House Financial Services Committee.

While lenders say they are adding thousands of workers to modify loans, housing advocates say getting approved is still a time-consuming, bureaucratic nightmare. Many borrowers, are also wary of signing up because they are worried their payment will rise after the three-month trial period is over.

"You can absolutely understand why people are reluctant to sign these documents," said Bruce Dorpalen, director of housing counseling at Acorn Housing, a nonprofit group.

The program is voluntary, relying on subsidies to encourage mortgage companies to participate. Lenders must agree to reduce the loan payments to 38 percent of a borrower's monthly income. After that, the government and lender split the cost of bringing the payment down to 31 percent.

Eligible borrowers have to provide their most recent tax return and two pay stubs, as well as an "affidavit of financial hardship" to qualify.

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