The Obama administration's embattled mortgage relief plan has provided permanent help to only 4 percent of borrowers who have signed up, weak results that could threaten the housing market's recovery.
Among big lenders, Bank of America Corp. had the worst performance in the Treasury Department report card released Thursday. The nation's largest lender completed just 98 modifications for the 160,000 borrowers who had signed up by the end of November. GMAC Mortgage had the most modifications of any lender, just 7,100.
About 760,000 have signed up for the program since it launched in March. But as of last month, just over 31,000 homeowners had received permanent loan modifications. Nearly the same number have fallen out of the program completely either because they missed payments or were found to be ineligible.
The report shows the administration is not going to hit its long-term target of helping up to 4 million borrowers with modified loans, said Ted Gayer, an economist at the Brookings Institution.
The more borrowers the program can't reach, the more foreclosed homes will spill onto the market, pulling down home prices. About 14 percent of homeowners with a mortgage are either behind or in foreclosure.
"Nobody really knows how big that wave will be," Gayer said.
The Treasury Department said it will step up pressure on the industry to improve. The administration's focus is to "get as many of those eligible homeowners as possible into permanent modifications," said Phyllis Caldwell, chief of Treasury's homeownership preservation office.
When the poor progress was clear last summer, Treasury set a goal of enrolling up 500,000 borrowers by Nov. 1. With the clock ticking, many lenders started giving homeowners verbal approval for a temporary modification.
"They were going to do anything to hit that number," said Marietta Rodriguez, national director of homeownership programs at NeighborWorks America.
Under the program, eligible borrowers who are behind or at risk of default can have their mortgage interest rate reduced to as low as 2 percent for five years. They are given temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the required paperwork, including proof of income and a financial hardship letter.
Lenders blame the low success rate on borrowers who don't return the necessary paperwork to complete the process.
But Michael Heller of Salinas, Calif., says he and his wife have submitted all of the required documents and made six months of $1,800 payments to JPMorgan Chase & Co., but have yet to receive an answer.
"Every time we send them documents, they send us a form letter that says your modification is risk, you screwed up, you didn't send us the necessary documents," said Heller whose landscaping business has taken a severe hit due to the recession. He figures the house he bought for $640,000 in 2006 is now worth $250,000.
"You never talk to the same person twice," he said. "It makes you a little bit kooky. This has been extremely stressful."
JPMorgan Chase had no immediate comment on their case.
Mike Brauneis, director of regulatory risk consulting at consulting firm Protiviti Inc., predicts that only 20 percent of borrowers who were verbally approved for modifications will ultimately sign up.
"Either people qualify verbally and never send their paperwork in, or they send it in and the numbers are different," he said.
Wells Fargo & Co. has enrolled about 3,500 homeowners in the Obama program so far. There are 14,000 more who have completed all their paperwork and are likely to finish the process soon. Another 9,000 have made three payments but haven't sent back any documents, while 11,000 have sent some paperwork.
"We're going to do all we can to try to get their attention," said Cara Heiden, co-president of Wells Fargo's mortgage division.
Bank of America said it is trying to reach 50,000 customers who have completed three payments but are missing some or all documents. It said its "momentum in converting customers to permanent modifications" will show results this month.
Some borrowers, who lied about their incomes when they originally took out their loans, still aren't able to show proof. During the housing boom, the lending industry didn't require borrowers to prove their income, and those loans are highly concentrated in the states hardest-hit by the housing bust.
More than half of loans made in California and Nevada from 2004 to 2007, for example, required little or no documentation, according to research firm First American CoreLogic. Nationally, about 4.3 million of those loans were made during the boom years.
"You definitely have a group that shouldn't be in the loan in the first place" said Terry Moore, managing director of consulting firm Accenture's North America banking practice.
A watchdog report this week said the government effort "appears capable of preventing only a fraction of foreclosures" and that only $2.3 million out of a potential $75 billion government commitment had been spent.
Steve Carpinelli, 39, of Alexandria, Va., thought he'd be a natural candidate for the Obama plan, after seeing his income drop 35 percent from about $65,000 two years ago. He's struggling, but has still made his monthly mortgage payments so far.
Though he was initially approved for a temporary modification, made four trial payments and sent back the necessary paperwork, Citigroup Inc. denied him last month.
"It is the most grueling processes I have ever been through financially," Carpinelli said.
A Citi spokesman declined to comment on his case but said, "if the borrower does not qualify, we look for other potential loss mitigation solutions."