The Obama administration's foreclosure-prevention effort has been ineffective in tackling the foreclosure crisis, the watchdog for the federal bank bailouts said Monday.
Neil Barofsky said Treasury officials are falsely claiming that the program has helped more than 1.3 million homeowners, even though fewer than half of them have received permanent changes to their mortgages through the government's plan.
About 729,000 homeowners who were initially accepted into the program to have their mortgage payments lowered have been disqualified through September, the Treasury Department said Monday. That's about 53 percent of the nearly 1.4 million who were enrolled in the program over the past year. And it's up from about 680,000 a month earlier.
Roughly 467,000 borrowers, or 34 percent of those enrolled in the program, have received permanent loan modifications and are making their payments on time.
Barofsky, the inspector general for the $700 billion Wall Street rescue, said Treasury claims it has "helped" everyone who entered the program _ even those who later fell out.
The administration "is either hopelessly out of touch, or it's really a cynical attempt to try to define failure as success," he said in an interview.
Barofsky's report also disclosed for the first time that the two other pieces of the housing-assistance plan have fallen flat.
Only 342 households to date have benefited from a program that pays banks incentives to complete so-called short sales _ when the bank allows the borrower to sell their home for less than they owe on the mortgage. And only 21 homeowners have received help paying down second mortgages.
Both of those programs were announced with fanfare last year.
The main Obama plan was designed to help people in financial trouble by lowering their monthly mortgage payments. Homeowners who qualify can receive an interest rate as low as 2 percent for five years and a longer repayment period. The average monthly payment has been cut by about $500.
The homeowners receive temporary modifications. These are supposed to become permanent after borrowers make three payments on time and complete the required paperwork. That includes proof of income and a letter explaining the reason for their troubles. In practice, though, the process has taken far longer.
The Obama administration said it was encouraged by data showing that only about 10 percent of those who completed the modification process by the end of March had missed at least two months of mortgage payments.
"The majority of homeowners are maintaining," their payments, said Tim Massad, acting assistant Treasury secretary for financial stability. That, he said, reflects "rigorous standards the program uses to provide assistance to responsible homeowners."
Low participation means that the program is likely to cost far less than originally forecast. Though Treasury has set aside $50 billion from the federal bank bailout fund for the housing relief effort, only about $483 million has been spent, Barofsky said.