One year later: Lasting help for 116,000 homeowners

NEW YORK (CNNMoney.com) -- One year after President Obama unveiled an ambitious plan to help struggling homeowners, more than 116,000 borrowers have received long-term reductions in their mortgage payments through January. This comes to about 11.5% of those who have entered the program.

While administration officials trumpeted the jump in those receiving permanent help, experts say the program is falling far short of addressing the ongoing foreclosure crisis.

Loan servicers have approved the applications of another 76,000 delinquent borrowers but are awaiting signatures on the final paperwork, administration officials said Wednesday.

Nearly 60,500 people have been denied permanent adjustments through the Home Affordable Modification Program.

Some 830,500 homeowners are currently in trial modifications, a review period during which banks check if the payments are feasible and ensure the qualifications of the assistance program are met. A total of 28% of eligible delinquent borrowers are either in trial or permanent modifications, receiving an average monthly reduction of more than $500.

The program has come under fire for not helping delinquent homeowners fast enough and not assisting those who are unemployed or owe far more than their homes are worth. Still, Obama administration officials Wednesday praised the effort's impact on borrowers and the economy.

"Struggling families are receiving payment relief and the housing market is showing signs of stabilization," said Phyllis Caldwell, chief of Treasury's Homeownership Preservation Office.

Administration officials said the $75 billion program is on track to meet its goal of helping up to 4 million people avoid foreclosure.

The first year was anything but easy for Treasury and Housing Department officials, who were tasked with creating the loan modification that would bring monthly payments down to 31% of pre-tax income for those who qualify.

The much-anticipated initiative was unveiled with much fanfare in mid-February, when foreclosures and delinquencies were quickly mounting. However, it took until May for the program to really get underway.

Facing an avalanche of desperate homeowners, servicers were slow to place borrowers in trial modifications. Complaints mounted.

By July, the administration was ramping up the pressure on financial institutions and making changes to the program to boost the numbers entering the trial phase. By mid-October, more than 500,000 people were in trial modifications.

The focus then shifted to converting those in the trial phase to long-term modifications. While 75% of borrowers were making timely trial payments, servicers struggled to collect the paperwork needed to determine whether homeowners qualified for permanent modifications.

Administration officials once again put the screws to the financial institutions, while at the same time lightening the documentation requirements. Last month, the Treasury Department announced new guidelines requiring servicers to process the paperwork before putting homeowners into trial modifications.

The number of permanent modifications have been steadily growing in recent months. At year's end, only 66,500 people had received long-term adjustments.

Servicers say they have ramped up their efforts to review borrowers in the trial phase.

"In the past month, our concerted customer outreach initiative has driven a substantial increase in the rate of conversions from trial to permanent modifications," said Jack Schakett, credit loss mitigation strategies executive for Bank of America Home Loans, which has granted 12,800 permanent modifications, up from 3,200 a month earlier.

Likewise, Wells Fargo (WFC, Fortune 500) said it doubled the number of permanent modifications it has done in the past month to 17,652.

Still, the number of people who are getting long-term help remains small compared to the numbers needing it. And servicers' performance continues to be very uneven. While Citigroup (C, Fortune 500) has placed 50% of its eligible delinquent homeowners in modifications, Bank of America (BAC, Fortune 500) has provided adjustments to only 22% of its borrowers.

Despite the administration's efforts, the national housing picture remains mixed. While home prices have stabilized and foreclosure filings have dropped, many experts expect 2010 to be another brutal year.

Consumer advocates are ramping up their calls for the White House to do more to help the unemployed and those who owe much more than their homes are worth. These folks are more likely to fall into foreclosure, experts say.

Some housing experts say that the administration must pressure banks to reduce the principal balances of homeowners who are severely underwater. This gives borrowers more motivation to keep making monthly payments.

"One of the largest issues in the mortgage market is that modifications, as presently designed, are not working," said Laurie Goodman, a senior managing director at Amherst Securities. "It is clear that at some point, it will be necessary to write down principal to raise the modification success rate."

Other industry experts fear that the president's program may have slowed the foreclosure march, but not prevented it.

TransUnion Tuesday reported that mortgage delinquencies increased 10.24% in the fourth quarter, the 12th straight such rise. Year-over-year, borrower delinquency is up about 50%. On the horizon for 2010 are the resetting of a wave of adjustable rate mortgages.

"We're not out of the woods yet," said FJ Guarrera, vice president of TransUnion's financial services business unit.