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Foreclosure plan leaves many out

Watchdog group says Obama plan lags behind crisis

WASHINGTON — The Obama administration’s flagship mortgage aid program lags well behind the foreclosure crisis and leaves consumers strapped with high levels of debt, a watchdog panel’s report said Wednesday.

More than a year after the $75 billion plan’s launch, the Obama administration “is still fighting to get its foreclosure programs off the ground,” said Elizabeth Warren, who heads the independent Congressional Oversight Panel set up by Congress.

The program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Mortgage investors and collection companies get taxpayer incentives to reduce borrowers’ monthly payments.

The program struggled from the start. President Barack Obama’s housing secretary, Shaun Donovan, acknowledged in a speech Tuesday that the administration did not foresee how much effort it would take for the mortgage industry to launch the program.

Many mortgage companies, he said, “were too slow to make the investments in systems and staff needed” to put the program in place. But he noted that many families are getting meaningful relief.

Through March, about 231,000 homeowners have completed loan modifications. That’s about 21 percent of the 1.2 million borrowers who began the program over the past year.

About 158,000 homeowners have dropped out of the program so far. Many more are still in limbo, awaiting a final answer from their bank. By contrast, about 6 million homeowners have missed at least two months of payments, the report noted.

Last month, the administration expanded the program, launching a plan to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. But the details of those programs are expected to take months to work out.

Obama officials are careful to stress the plan’s limitations. “We cannot help those who simply bought a home they could not afford,” Treasury spokeswoman Meg Reilly said in a statement.

The oversight panel’s report comes a day after top banking industry executives expressed skepticism about helping troubled borrowers by forgiving a portion of their debt.

The executives told lawmakers on Tuesday they are reducing the amount that troubled borrowers owe on their home loans only in limited cases. That’s because consumers who are paying their mortgages on time are likely to see such reductions as unfair, they said.

Such programs “could raise issues of fairness,” said Sanjiv Das, Citigroup’s top mortgage executive, who appeared in front of the House Financial Services committee with top executives from Bank of America, Wells Fargo & Co. and JPMorgan Chase.

AP Business Writer Daniel Wagner contributed to this report from Washington.