WASHINGTON - President Obama's plan to fix the foreclosure crisis has been a dud, putting the housing market recovery at risk.
Hopes were overinflated when Obama unveiled the program before an adoring audience of Arizona high school students last February. Almost a year later, it appears only about 750,000 homeowners - a fraction of the 3 million to 4 million originally projected - might complete the application process, predicts Mark Zandi, chief economist at Moody's Economy.com.
A record 2.8 million households were threatened with foreclosure last year, up more than 20 percent from a year earlier, RealtyTrac Inc. reported this week. The foreclosure listing firm expects another record this year.
Home prices, meanwhile, are down 30 percent nationally from the peak in mid-2006, and there is mounting evidence they will fall again over the winter as low-priced foreclosures make up a larger proportion of sales.
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The Obama plan aims to help borrowers in financial trouble by making their payments more affordable. Modifications made under the program include a lower interest rate and often a longer repayment period. The average monthly payment has been cut by $500 on average.
The homeowners receive temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the required paperwork, including proof of income.
However, just 66,500 borrowers, or 7 percent of those who signed up, have completed the program as of December, the Treasury Department said Friday.
Another 49,000, or more than 5 percent, have dropped out of the program entirely - either because they missed payments or were found to be ineligible. Thousands more remain in limbo awaiting an answer.
There's blame on both sides: Mortgage companies say they have struggled to get back the necessary paperwork, while homeowners and housing counselors say navigating the bureaucratic maze often seems impossible.
But the 102 participating companies are getting wildly different results.
The biggest company in the program, Bank of America, has completed modifications for fewer than 2 percent of the 200,000 borrowers it has enrolled. Rebecca Mairone, a Bank of America executive, said the bank has started sending notaries door-to-door to get signed documents back quickly.
Another major mortgage company, Wells Fargo & Co., is doing better but still has completed modifications for fewer than one in 10 borrowers.
To speed up the process, Wells Fargo has been holding a borrower assistance events in several major cities.
LOCAL ANGLE
Arizona had the nation's second-highest foreclosure rate in 2009, behind Nevada, according to data released Wednesday by RealtyTrac.