width=311A U.S. program aimed at helping struggling homeowners avoid foreclosure has been oversold by the Treasury Department and is likely to be a failure when it wraps up in 2012, a report from the watchdog overseeing the $700 billion bank bailout said on Tuesday.

Even if the loan modification program ends up with 1.5 million to 2 million homeowners with new, more-favorable terms on their loans, 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.

Neil Barofsky, the Treasury's Special Inspector General for the Troubled Asset Relief Program, said the Obama administration's $75 billion Home Affordable Modification Program (HAMP) has a definition of success that is essentially meaningless.

Barofsky noted that when HAMP was launched in the first few months of 2009, Treasury proclaimed the program would help up to 3 million to 4 million at-risk homeowners avoid foreclosure.

More recently, the Treasury has said the 3 million to 4 million figure refers to how many homeowners would receive offers of a trial modification, not how many homeowners get an actual long-term modification.

To be meaningful, Treasury's goal for HAMP must relate to how many people are helped to avoid foreclosure; because offers standing alone do not actually assist homeowners, it is simply not a useful measure, Barofsky wrote.


In its latest monthly report, Treasury said there were 1,003,902 active loan modifications through February and 168,708 of those have been made permanent. That was up from 946,735 active loan modifications and 116,297 permanent loan modifications through January.

But just 2.8 percent of the 6 million borrowers with loans delinquent more than 60 days have had their loan modifications made permanent through February.

And the number of homeowners with loans delinquent more than 60 days is rising far faster than the number of loans being made permanent each month.

As of January, there were 5.6 million homeowners who were 60 days or more behind on their payments. That means about 400,000 more people fell behind on their payments from January to February, compared to about 50,000 who received a permanent modification in that same period.

Approximately 2.8 million homeowners received foreclosure filings just in 2009, and millions more are expected in 2010, with some estimates predicting that the number will eclipse the already staggering 2009 number, the report said.

Barofsky urged Treasury to develop other performance metrics to measure over time the implementation and success of HAMP.

He suggested Treasury could set goals for mortgage servicers to achieve a certain percentage of modifications relative to the number of loans in default or measure the number of loan modifications relative to overall foreclosures.

If HAMP ends up being a foreclosure mitigation program that merely delays foreclosures rather than preventing them, the program will be of questionable value, particularly in light of the huge investment of taxpayer funds, Barofsky wrote.