BOSTON ( TheStreet) -- President Barack Obama's mortgage-assistance program has been a failure. Now the government is modifying the modification program itself.

The Home Affordable Modification Program (HAMP) has helped only 168,708 homeowners as foreclosures rose to 2.8 million last year. Foreclosures may jump to 4.5 million this year, according to economists.

A report released yesterday by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) on the failings of HAMP was dire. Even if the mortgage-relief program eventually achieves 1.5 to 2 million permanent modifications, "the program will not be a long-term success if large amounts of borrowers simply re-default and end up facing foreclosure anyway," the report said.

Shortly after taking office, Obama counted on the mortgage-assistance program to bail out homeowners and save the economy from falling into a deeper rut. The jobless rate rose to more than 10% at the end of last year, imperiling more homeowners. Obama's new plan expands Treasury Department and Federal Housing Administration efforts, using money from the Troubled Asset Relief Program, which bailed out big banks including Bank of America and Citigroup.

The Obama administration could do a better job of seeing the foreclosure problem and possible remedies through the eyes of homeowners. Consumers' viewpoint may have been lost amid wrangling over financial technicalities.


Pessimism among endangered homeowners likely kept many from exploring their options. Had more people looked into trial-modification programs, the larger pool of homeowners would have spelled greater success.

Homeowners with underwater mortgages, whose loans are larger than the homes are worth, are no longer fearing the repercussions of a foreclosure or viewing it in ethical terms. Wall Street abuses and bailouts have fostered an attitude that walking away from an obligation is a legitimate option. There's a defeatist attitude among many who would rather just give up than work through the process of an assistance program.

In what may be a chicken-and-egg type of debate, most think in terms of the foreclosure crisis having contributed to the spike in the unemployment rate. There may be no doubt that foreclosures led to shrinkage in housing-related industries. But record unemployment rates are surely feeding that feeling of a continuous cycle of foreclosures.

A total of 9.7% of American workers are unemployed. More telling is that 43%, or about 6.3 million people, are classified as long-term unemployed (out of work for 27 weeks or at least six months).

Even the best modification program would be hard-pressed to attract the participation of someone looking at the real prospect of a full-year without steady income. The prospect of re-defaulting looms large.


Not all homeowners can, or should, be saved. Poor financial decisions, exemplified by large debt and little savings, need to be acknowledged.

According to the SIGTARP report, the HAMP program's design made it "particularly vulnerable to re-defaults."

Non-mortgage debt -- car payments, student loans, credit cards and second liens -- isn't factored into the modified-payment calculation and doesn't exclude borrowers from participating.

Borrowers may be unable to meet increased monthly payments as the five-year modification program runs its course. Even with interest incrementally raised by 1 percentage point annually during the program, many homeowners could see monthly payments jump 20% to 30%. Incomes are unlikely to rise in tandem.

A study by the National Community Reinvestment Coalition (NCRC), an association of 600 community-based organizations that promotes access to banking services, almost half of distressed homeowners seeking modifications were 50 and older, "suggesting this crisis has the potential to threaten the retirement security of a large segment of the American population." Given the choice of a foreclosure or losing their nest egg, most older Americans will likely choose the former.


People can't take advantage of a program they don't know about. Public outreach is cited in the SIGTARP analysis.

The HAMP program has been promoted online, at community outreach events and through an informational telephone hotline. Community outreach took place in only 23 cities.

The Treasury Department's plan to use media advertising is delayed and won't begin until next month because it has taken more than a year to develop the collection of public-service announcements.

Until a wide-reaching television and radio campaign is launched, there are millions of people who don't know the program is available, how it can help them or how to participate. Worst of all, even if the government isn't marketing its program effectively, disreputable "foreclosure prevention" businesses are.

In a study released this week, NCRC reported that it had conducted "mystery shopping" of almost 200 foreclosure-prevention providers. The shoppers posed as delinquent borrowers facing steep increases in the monthly payment of their interest-only loans.

The foreclosure-prevention providers quoted an average fee of $2,611 for their services and only 20% followed Federal Trade Commission (FTC) guidance that requires companies to inform consumers of alternatives such as nonprofit organizations that provide services for free. In about a quarter of the mystery-shopping calls, shoppers were advised to refrain from paying their mortgage and from contacting their lender.

-- Reported by Joe Mont in Boston.