Homeowners Dropping Out of Fed Loan Aid Program

Washington, DC, June 22, 2010--The federal program to help people in danger of losing their homes is running into problems.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program are no longer in the program. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

Last month 155,000 borrowers left the program -- bringing the total to 436,000 who have dropped out since it began in March 2009.

About 340,000 homeowners have received permanent loan modifications and are making payments on time.

A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Many borrowers complained that the banks lost their documents. The industry said borrowers weren't sending back the necessary paperwork.

Treasury officials now require banks to collect two recent pay stubs at the start of the process. Borrowers have to give the Internal Revenue Service permission to provide their most recent tax returns to lenders.

Requiring homeowners to provide documentation of income has turned people away from enrolling in the program. Around 30,000 homeowners started the program in May. That's a sharp turnaround from last summer when more than 100,000 borrowers signed up each month.

Obama administration officials contend that borrowers are still getting help -- even if they fail to qualify. The administration published statistics showing that nearly half of borrowers who fell out of the program as of April received an alternative loan modification from their lender. About 7 percent fell into foreclosure.