As of the end of October, more than 650,000 borrowers, or 20 percent of those eligible, had signed up for trials lasting up to five months, the Treasury Department said Tuesday. The modifications reduce monthly payments to more affordable levels.
To make the change permanent, though, borrowers must complete a big stack of paperwork and show they can make their payments on time. At the beginning of September, only about 1,700 permanent modifications had been made. The Treasury Department expects to release updated data later this month.
"We're seeing some early indications that the servicers haven't done enough to get all the documents in," said Michael Barr, an assistant Treasury secretary.
Consumer advocates say banks aren't doing enough to follow through. "It's going to be the make-or-break issue," said Alan White, a law professor at Valparaiso University and a consumer attorney. The government, he said, will have to "crack the whip or consider firing some of these servicers."
Mortgage companies that are performing poorly, he said, should have their right to collect payments on loans revoked and transferred to companies that are doing the job better.
Launched with great fanfare in March, the plan got off to a weak start, but now nearly 920,000 loan modification offers have been sent to more than 3.2 million eligible homeowners. That works out to 29 percent, up from 15 percent at the end of July.
In California, about 130,000 homeowners have been enrolled in the "Making Home Affordable" loan modification plan, which President Barack Obama unveiled in February. That works out to about 19 percent of the state's homeowners who were either two payments behind or in foreclosure at the end of last month, according to Treasury Department data.
Two other hard-hit states, Arizona and Nevada had similar rates of assistance as California, at 22 percent and 18 percent respectively. Florida, however, was much lower, at 12 percent, possibly because of high numbers of investor-owned properties that don't qualify for the program.
Government officials say they are pressing mortgage companies hard to improve their performance. Still, many housing advocates have been disappointed with the $50 billion plan's progress and say that getting a loan modification remains a battle.
And economists doubt the Obama administration will reach its broad goal of helping 3 million to 4 million borrowers within three years.
Traditionally mortgage servicers were low-cost operations, with workers in collections departments trying to wring payments from tardy borrowers. Those workers, and thousands of new ones, are now engaged in a far different job - figuring out whether thousands of borrowers qualify for help.
Banks, for their part, have been slow to adapt to an unfamiliar climate of sinking home prices and rising unemployment.
"Even as foreclosures and delinquencies were soaring, everybody underestimated how ugly the housing picture was," said Thomas Lawler, an independent housing economist in Virginia.
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