MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. Im Michele Norris.

The U.S. is in the middle of a housing crisis of historic proportions. And this week, the government's foreclosure prevention efforts were blasted by a federal auditor. The report says the Obama administration's program is reaching too few people. It's also hurting some homeowners by stringing them along and then rejecting them.

There is some good news. New data show that the program is working well for homeowners who actually manage to qualify.

NPR's Chris Arnold reports.

CHRIS ARNOLD: Some in the mortgage industry have been pretty pessimistic about efforts to help homeowners avoid foreclosure. They say people in such deep financial trouble will probably just keep missing payments no matter what you do.

But numbers out this week suggest otherwise. After nine months, nearly 90 percent of homeowners are still making their mortgage payments after getting more affordable terms through the Obama administration's program.

Mr. TIM MASSAD (Assistant Secretary, Treasury Department): I think these are very, very encouraging numbers. And we're hopeful that they continue.

ARNOLD: Thats Tim Massad, an assistant secretary at the Treasury Department. He says the numbers show that the administration's so-called Home Affordable Modification Program, or HAMP, is working. That is, it's helping people to keep their houses while also saving the financial system from even greater losses from foreclosures.

Mr. MASSAD: We have designed rigorous standards for the program. It is having an impact.

ARNOLD: So analysts say there's at least the kernel of a good program here. But critics say it's not reaching enough people. The administration initially estimated it would help three to four million homeowners. So far, only half a million have received permanent mortgage modifications. That is a lot of people but it's far short of the need out there, with millions more people facing foreclosure.

Mr. IRA RHEINGOLD (Executive Director, National Association of Consumer Advocates): The program really is a failure.

ARNOLD: Ira Rheingold heads up the National Association of Consumer Advocates.

Mr. RHEINGOLD: While the numbers may be encouraging, in terms of the success of the loan modifications that are being done, so much more should have been done that wasnt done.

ARNOLD: This week, the federal special inspector general overseeing the government's bailout programs issued a report that was sharply critical of HAMP. It said that homeowners get strung along for too many months, making loan payments during a trial period, only to then get rejected for a permanent, more affordable loan. They, quote, "end up unnecessarily depleting their dwindling savings in an ultimately futile effort."

Consumer advocate Ira Rheingold.

Mr. RHEINGOLD: So many people have gone through that system, have had hoped that they could save their home, and we've seen a lot of people lose their homes who should not have lost their homes.

ARNOLD: Rheingold says a big part of the problem is that the banks are in charge of qualifying people for the administration's program. He says that system is not working well. The banks' call centers lose documents; they reject homeowners for the wrong reasons. Basically, he says, it's a paperwork tar pit that the homeowners slowly sink into.

For their part, the banks says that they're doing all that they can in the face of this massive wave of foreclosures. They're working with the administration's HAMP program, as well as with their own efforts. And they say that they are helping hundreds of thousands of people. But state prosecutors are skeptical.

Richard Cordray is Ohio's attorney general.

Mr. RICHARD CORDRAY (Attorney General, Ohio): Yeah, we've opened a 50-state investigation. The banks have created this exposure for themselves. What they need to recognize is that they're now in a lot of trouble.

ARNOLD: These investigations center around the banks allegedly fraudulent foreclosures documents that they filed with courts around the country. State prosecutors think that theyve got solid cases against the banks there. But they also say that they'd like to use that leverage to force the banks to do a better job at qualifying people for HAMP and other effective loan modification programs.

Tom Miller is the attorney general of Iowa.

Mr. TOM MILLER (Attorney General, Iowa): It might make more sense to, instead of having the banks pay huge fines, have them put that money into adequately funding the modification process. It's still not adequately funded. They dont have enough people or enough resources, although theyve come a long way from where they were three years ago.

ARNOLD: Another possibility, Miller says, might be to install an outside monitor - someone with the authority to look inside the banks and their call centers and to ensure that they're meeting the commitments that theyve already made to the government to prevent further economic damage by avoiding foreclosures.

Chris Arnold, NPR News.

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