Since the housing market collapsed in 2007, the government, banks and mortgage lenders have created hundreds of loan modification programs in an effort to stem the foreclosure crisis and to get the U.S. economy back on track. The Obama administration’s initial mortgage relief programs, launched in early 2009, were intended to prevent 7 million to 9 million home foreclosure. So far, they have been able to extend mortgage help to nearly 2 million, and not all of those are out of risk of a loan default. Many homeowners have struggled to refinance a bad credit mortgage because they don’t have the equity or they are unable to meet the credit score requirements because of delinquent mortgage payment or mounting credit card debt.

Mortgage Modification Programs with Good Intentions

Many of the mortgage loan modification programs that begun later also have faltered. One loan mod program intended to help at least 500,000 has helped just a few hundred a year after its launch. Another initiative to extend $1 billion to help the jobless or underemployed avoid foreclosure ended in September, obligating less than half of its funds. The money that was not distributed had to be returned to the U.S. Treasury.

As of November 30, the government had spent just $2.8 billion of the $46 billion war chest it had in 2009 to devote to the housing crisis, the Treasury Department says. More has been committed, but only $13 billion will ultimately be spent, the non-partisan Congressional Budget Office estimated in March.

The Obama administration announced new guidelines with the HARP 2.0 that promised no Loan to Value restrictions. This home refinance program is only available to underwater borrowers who happen to have a mortgage owned by Fannie Mae or Freddie Mac.

Meanwhile, 2.5 million homes have been lost to foreclosure since 2009, an additional 4 million are in the home foreclosure process or seriously delinquent and home prices are still falling in much of the U.S., shrinking household wealth for millions of Americans. “Every loan modification program has fallen far short of goals. I can’t think of one that’s been largely successful,” says John Dodds, director of the Philadelphia Unemployment Project, a nonprofit that’s been involved in foreclosure prevention for decades.

The Obama administration’s programs were hampered by failed refinance options and loan modification program flaws, their reliance on a home loan industry overwhelmed by the fallout from a historic collapse in home prices and a brutally extended housing downturn. Nor could they always overcome the conflicting interests of borrowers with too much debt, mortgage lenders unwilling to surrender profits and home loan servicers with sometimes greater financial incentives to foreclose on loans.

The Obama foreclosure prevention plan is coming under fire this week from members of Congress. This heralded loan modification program slated to aid 3 million to 4 million homeowners in an effort to extend loan relief while helping homeowners divert foreclosure. Unfortunately this government loan modification program have fallen far short of that goal, and now a handful of Republican Congressman are reportedly ready to introduce legislation to eliminate it.  It should be noted the Bush and Obama administration have made serious attempts to stem the foreclosure crisis with numerous mortgage relief initiatives.

TARP Watchdog Says Loan Modification Plan Is Failing

Scores of homeowners aren’t getting help they qualify for, says Neil Barofsky, who is stepping down. The HAMP loan modification program was designed to lower interest rates and mortgage payments for struggling homeowners, and it has worked for around 600,000 people across the country. But critics say it should be reaching a lot more people. As lenders continue to tighten refinance loan guidelines, more and more homeowners will be in need of mortgage relief.

There are “3.3 million families who might have been reached by this program if only it had been better designed, better managed and better executed by the Treasury department,” said Neil Barofsky, the special inspector general installed to oversee the government’s bank bailout efforts. Speaking at a House hearing Wednesday, Barofsky responded to questions from North Carolina Republican Rep. Patrick McHenry, who recently introduced the legislation that would end the program. [There are] 3.3 million families who might have been reached by this program if only it had been better designed, better managed and better executed by the Treasury department.

A recent Nation Public Radio article revealed some interesting insight. TARP special inspector general, gave his thoughts regarding the Home Affordable Modification Program. Neil Barofsky has been critical of the Treasury department for not doing more to make the program work better and reach more people, and for not offering a current estimate of how many homeowners the program will actually reach. “It is somewhat shameful that at this point — here we are in March 2011 — and the Treasury department will in one breath say that, ‘Well, we know the number is not going to be anywhere close to what we originally said it would be,’ ” Barofsky said, “and then in the second breath refuse — I mean, this is such a basic failure in transparency, to refuse to tell you what their expectation is as to the total number that are going to receive permanent modifications. It evades accountability, and it’s trying to cover up a program that is clearly a failure.”

The Treasury department and Barofsky both agree that the banks and mortgage service companies have not been doing a good job.  Barofsky said. “But Treasury has done nothing to punish or penalize these loan servicers.” It would cause a huge amount of damage to a very fragile housing market and leave hundreds and hundreds of thousands, if not millions, of Americans without the chance to take advantage of a loan modification programs that enable homeowners to keep their homes.

Treasury Secretary Timothy Geithner said it would “cause a huge amount of damage to a very fragile housing market and leave hundreds and hundreds of thousands, if not millions, of Americans without the chance to take advantage of a mortgage modification that would allow them to stay in a home they can afford.”

According to NPR, Barofsky was critical, but did not of call for the Home Affordable Modification Program to be eliminated. Instead, he has long called for the Treasury to fix the program so it will help more people.

Loan modification agreements and stalled foreclosures appear to be the current trend with the banks.  Underwater mortgage loans have become a significant issue and that’s why HUD committed 1 billion dollars to the Emergency Homeowner Loan Program. Attorneys general from 49 states have agreed to coordinate efforts to investigate the nation’s foreclosure mess and determine whether servicers violated state laws by cutting corners when filing their paperwork.  Learn more about HUD’s new mortgage relief.

Chase has offered more than 900,000 mortgage modifications to struggling homeowners since the beginning of 2009 through a wide range of government and Chase initiatives to address the housing crisis.  “We have worked directly with homeowners as the economy has hit them far deeper and for far longer than they expected,” said Charlie Scharf, head of retail financial services at Chase. “We continue to look for creative and effective ways to help them stay in their homes, whenever possible.