The Obama administration's struggle to stem the U.S. foreclosure crisis illustrates how high household debt can slow recovery from a deep recession, according to the International Monetary Fund.
The global lending organization cited the failure of the administration's signature foreclosure-prevention program in a report it released Tuesday on household debt.
Fewer than 1 million mortgages have been modified under the Home Affordable Modification Program, or HAMP, the IMF noted. That's far short of the administration's initial goal of helping 3 million to 4 million struggling homeowners.
Nearly 8 million Americans have faced foreclosure since the housing bubble burst in late 2006.
The report notes that HAMP gave lenders limited incentives and set tight eligibility criteria for borrowers. The IMF also says the program has not reduced monthly mortgage payments enough to restore affordability in many cases; only 11 percent of permanent modifications included principal reductions.
The IMF noted that the administration improved other assistance programs in February by broadening eligibility and increasing incentives for lenders to offer principal reductions.
It cautioned that millions of U.S. households remain at risk of losing their homes as the government's efforts fall far short of a program implemented during the Great Depression.
"About 2.5 million properties are in foreclosure and another 1.5 million households are delinquent. These are staggering numbers," Daniel Leigh, the main author of the IMF report, told reporters at a briefing. "The need to do something is still there."
In response to the report, the Treasury Department said in a statement that "since the beginning of the administration, we have operated at the frontier of what was possible _ constantly refining and expanding our programs to reach as many homeowners as possible. We will continue our efforts until our nation heals from an unprecedented crisis."
A key reason so few homeowners have had their principal reduced is that Fannie Mae and Freddie Mac, which own roughly half of all U.S. mortgages, have not been cutting principal for borrowers at risk of foreclosure.
Edward DeMarco, the federal regulator for Fannie Mae and Freddie Mac, has opposed offering principal reductions, despite pressure from lawmakers.
On Tuesday, DeMarco, the acting director of the Federal Housing Finance Agency, slightly softened that stance, saying his agency would consider the idea.
Leigh said a greater response by the government would boost U.S. economic growth and help halt the decline in home prices.
The IMF's assessment of U.S. mortgage foreclosure policy was part of the agency's report on the impact of household debt on the global economy.
The global lending organization concluded that recessions tend to be more severe and prolonged if they are preceded by large increases in household debt, which is what happened ahead of the Great Recession.