FirstPublished: December 10, 2009: 2:45 PM ET
View actual Article on CNNMoney.com

Servicers provide permanent modifications to 31,382 troubled borrowers, according to first reportissued by Treasury Department. An equal number have been denied.

NEW YORK (CNNMoney.com) — Onlyabout 4% of troubled Borrowers have received long-term help under the Obamaadministration’s foreclosure prevention program, Treasury officials saidThursday.

A nearly equal number of trialmodifications have been denied Permanent assistance, the report showed. Thereasons include not making monthly payments on time, not submitting all thenecessary paperwork and not qualifying for reasons such as insufficient income.

The report, the first comprehensivetally of Permanent Modifications made, shows that loan servicers have converted31,382 people from trial adjustments to long-term assistance as of Nov. 30.

But 30,650 people in trialmodifications have been denied, according to Treasury officials.

The dearth of permanentmodifications has fueled concerns that the $75 billion plan will fall far shortof its goal to help up to 4 million delinquent homeowners.

The number of troubled borrowerscurrently in Trial Modifications rose to 697,026, up from 650,994, a month earlier.

“Our focus now is on workingwith servicers, borrowers and organizations to get as many of those eligiblehomeowners as possible into permanent modifications,” said PhyllisCaldwell, chief of Treasury’s Homeownership Preservation Office.

Banks and the administration havecome under fire in recent months as delinquent borrowers languish in trialmodifications. Lawmakers lambasted servicers and Obama officials at a congressional hearing Tuesday for not doing more to help homeowners facingforeclosure.

Last week, the administrationannounced it was ramping up its oversight of loan servicers’ conversionoperations, sending in SWAT teams to break up any logjams, and requiring banksto submit updates twice daily on their efforts. Administration officials calledfinancial executives to Washington this week to urge them to quicken theconversion pace.

“We’re not satisfied yet withhow this program is unfolding,” said Treasury Assistant Secretary forFinancial Stability Herbert Allison at the House Financial Services hearing.”The servicers have a lot of work to do, and we’re holding themaccountable for their performance.”

While the permanent modificationfigures are disappointing, there is still time for the Obama administration toturn the program around, said Alan White, a law professor at ValparaisoUniversity. But he would like to see a big increase in the numbers in the nextmonth or two.

“Treasury is aware there is aproblem,” White said. “We’ll see if they are able to do somethingabout it.”

Thursday’s announcement came hoursafter a report showed the foreclosure crisis might be mitigating somewhat.Foreclosure filings fell by 8%in November, the fourth consecutive month of declines, according to RealtyTrac,an online marketer of foreclosed properties.

The paperwork

Under the president’s plan,delinquent borrowers are put into trial modifications for several months tomake sure they can handle the new payments and to give them time to submittheir financial paperwork. Once the modification becomes permanent, servicers,investors and homeowners are eligible to receive thousands of dollars inincentive payments.

If they qualify for a long-termmodification, borrowers can keep making the lower payments for five years,after which time the interest rate is set at the rate at the time of theadjustment, or about 5% today. Borrowers in modifications are saving an averageof more than $550 a month.

Loan servicers say they are havingtrouble getting the necessary documents from borrowers.

Some 375,000 people should beeligible to receive long-term relief by year’s end. But only one-third ofhomeowners who have made at least three trial payments have submitted all theneeded forms, Treasury officials have said. Some 20% have not submitted anypaperwork. Banks and government agencies have hired outside companies to knockon borrowers’ doors to assist them with completing the paperwork.

Homeowners, however, maintain thattheir financial institutions are constantly losing the paperwork.

Donna Belanus, who just made herfourth trial payment to Wells Fargo, has repeatedly faxed her financialinformation and hardship letter to her loan servicer after being told her filewas incomplete. The Elkhorn, Wis., resident was told a month ago that she’dreceive a decision soon, but she’s still waiting.

“If you give them everything,they should have an answer,” said Belanus, who saw her monthly paymentsdrop nearly $350 under the trial modification. “I don’t want to lose myhome because they take too long. It’s uneasy not knowing what’s going to happen.”

A Wells Fargo spokesman saidBelanus’ file is complete and is in the review process. She should be notifiedof a decision within 45 days.

Denied

0:00 /2:06A rarecase of mortgage reduction

Once their files are complete,borrowers may be denied long-term help if they don’t meet the program’scriteria.

At JPMorgan Chase (JPM, Fortune 500),for instance, some 29% of borrowers offered trial plans did not make therequired payments and are not eligible for permanent modifications, the bankreported. Another 51% have made the three required payments but have notprovided all the needed paperwork.

The bank has launched a program tocall borrowers 36 times, reach out by mail 15 times and make at least two homevisits to retrieve the required forms.

About 20% have met all the criteriaand the majority are expected to be put in long-term modifications soon, thebank said.

So far, some 4,302 borrowers atChase have received permanent modifications, while another 16,131 have beenapproved for long-term help. The servicer has offered trial modifications to199,033 borrowers.

“We continue to work very hardto convert customers from a trial modification to a permanent modification thatlowers their monthly payment, but it has been a struggle,” said Charlie Scharf,head of retail financial services at Chase.