The Obama administration’s main program to keep distressed homeowners from falling into foreclosure has been aimed at those who took out subprime loans or other risky mortgages during the heady days of the housing boom. But these days, the primary cause of foreclosures is unemployment.

As a result, there is a mismatch between the homeowner program’s design and the country’s economic realities — and a new round of finger-pointing about how best to fix it.

The administration’s housing effort does include programs to help unemployed homeowners, but they have been plagued by delays, dubious benefits and abysmal participation. For example, a Treasury Department effort started in early 2010 allows the jobless to postpone mortgage payments for three months, but the average length of unemployment is now nine months. As of March 31, there were only 7,397 participants.

“So far, I think the public record will show that programs to help unemployed homeowners have not been very successful,” said Jeffrey C. Fuhrer, an executive vice president of the Federal Reserve Bank of Boston.

Data released last week suggests that the administration’s task is only growing more difficult as the problems created by unemployment and housing persist. New job growth in May was anemic, and unemployment inched up to 9.1 percent, the Labor Department reported Friday.

Earlier in the week, a widely watched index found that housing prices had dropped to their lowest level in nearly a decade. And while the rate of homes falling into foreclosure has slowed, the reason is delays in processing foreclosures, not a housing recovery, according to RealtyTrac, a company that tracks foreclosures. There were 219,258 foreclosure filings in April, the latest month available.

Critics of the Obama administration’s approach to preventing foreclosures have pressed for two years to get officials to focus more of their attention on unemployed homeowners, with meager results. As part of the bank bailout, the Treasury Department was given $46 billion to spend on keeping homeowners in their houses; to date, the agency has spent about $1.85 billion.

Morris A. Davis, a former Federal Reserve economist, estimates that as many as a million homeowners slipped into foreclosure because of insufficient help for the unemployed.

“The money was there and they didn’t spend it,” said Mr. Davis, an associate real estate professor at the University of Wisconsin. “I don’t mean to sound outraged, but I am pretty outraged.”

Administration officials said their programs have had a positive impact, albeit not as large as they had hoped. But they say that the problems of unemployment and negative equity on homes are not easily solved. They also say programs to curb foreclosure are voluntary, so they are limited in how far they can push mortgage servicers and investors, who often make more from foreclosures than from offering aid.

“We are trying to be careful in designing programs that at the end of the day aren’t just about spending money but getting people back on their feet,” said James Parrott, a senior adviser at the White House’s National Economic Council.

President Obama has been scrambling to curb the number of foreclosures ever since he arrived at the White House.

At the start of 2009, the administration announced its primary foreclosure prevention initiative, the Home Affordable Modification Program. It provides incentives to banks to modify mortgages, reducing monthly payments for eligible homeowners.

The administration said the program would help three million to four million homeowners, but so far, only 670,000 homeowners have received permanent modifications. In addition, the program was primarily meant for homeowners with risky mortgages; jobless owners are often ineligible because some payment, albeit reduced, is required.

Article source: http://www.nytimes.com/2011/06/05/business/economy/05housing.html?partner=rss&emc=rss