Hope Now: We've helped 1M home owners

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NEW YORK (CNNMoney.com) -- Hope Now, the foreclosure prevention coalition put together with the Bush administration's support, claims dramatic success in helping at-risk mortgage borrowers stay in their homes.

The groups has reworked more than 1 million mortgage loans since July, Treasury Secretary Henry Paulson said in a speech before the National Association of Business economists on Monday.

But of those borrowers, only 278,000 actually saw the terms of their mortgages modified. Their lenders either froze or reduced their interest rates, and may have reduced their balances as well to make loans more affordable.

The remaining home owners were put on repayment plans, which merely allow borrowers to make up missed payments by tacking them on to the life of the loan. Critics argue that this does little to make to make mortgages any more affordable for hard-pressed borrowers.

Loan modifications alone increased 19% from December to January, Paulson told the gathering. By comparison, foreclosure starts increased just 5% during the same period, he said.

"I am encouraged that the number of borrowers receiving help is rising faster than the number entering foreclosure."

Loan modifications are indeed making up a greater proportion of Hope Now's workouts - 36.4% in January, compared with 29.9% in the last three months of 2007 and 19.1% for the three months ended September 30.

Paulson also reiterated the administration's opposition to any government led bail out of lenders.

"The number of loans being modified shows progress," said Austin King, director of the Financial Justice Center for the Association of Community organization for Reform Now (Acorn), "but it's still not enough."

"The majority of the work-outs are still repayment plans, which are not going to [keep people out of foreclosure]," said King. "The reliance on repayment plans is one of the biggest failings of the lenders."

When borrowers are stretched so thin that a financial setback, such as unexpected medical bills or temporary job loss, puts them behind on payments it means they really don't have enough income to keep up their mortgage payments. And tacking on missed payments on to a loan just makes things worse, according to King. Many of those borrowers will default again.

Even many mortgage modifications have shortcomings and may also simply delay default. If low teaser rates on hybrid adjustable rate mortgages are simply extended for a year or two, borrowers may still fall behind when the rates do finally reset, according to King.

"For modifications to work, they have to make the loans more affordable [permanently]," he said.

In addition to lender cooperation, Paulson also noted in his speech that homeowners have to seek help out if they need it. He noted that lenders only get a 2% - 3% response rate when they contact struggling home owners. The Hope Now alliance, which includes Citigroup (C, Fortune 500), J.P. Morgan (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500) and many other banks, has a 20% response rate.

Still, he noted that leaves 80% of at-risk borrowers without a plan. "If borrowers don't ask for help, they will have to bear the consequences," Paulson said, "which may very well mean losing their homes when that could have been prevented."