Lawmakers question Obama loan help effort

Lawmakers are taking aim at the Obama administration's struggling mortgage assistance program, with Republicans calling it a worthless exercise and Democrats saying it doesn't go far enough.

In a report Thursday, Reps. Darrell Issa, R-Calif. and Jim Jordan, R-Ohio., called the program a misuse of taxpayer money. Though $75 billion has been set aside for the program, so far only $15 million has been spent.

They also said it distorts the housing market by keeping people in their homes who would be better renting.

"Many Americans are throwing their money into homes that they believed the government would help them keep, only to find out thousands of dollars later that they will face foreclosure anyway," Jordan said at a House hearing.

Obama administration officials, however, say the program gives a second chance to homeowners who were given shoddy loans during the housing boom. And they defend their track record, even though only 116,000 homeowners have completed the process out of the 1 million enrolled since the program's launch last March.

While "challenges remain", the program "is helping homeowners who have faced real financial hardship," said Phyllis Caldwell, chief of the Treasury Department's homeownership preservation office.

Democrats, however, argued that the Treasury Department needs to put more pressure on the lending industry to reduce borrowers' outstanding principal balances

The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. To complete the process, homeowners need to make three payments and provide proof of their income, plus a letter documenting their financial hardship.

But experts warn that hundreds of thousands of borrowers will not complete the process because they are found to be ineligible during an initial trial phase. Housing counselors complain that many homeowners remain stuck in limbo without final word on their applications

Treasury officials acknowledge that the treatment of borrowers under the program has been a problem. They have been working on new consumer protections such as giving those rejected from the program 30 days to appeal the decision and barring lenders from lenders continuing with foreclosures while homeowners were being evaluated for help.

Last week, President Barack Obama announced that housing agencies in Arizona, California, Florida, Michigan and Nevada will receive $1.5 billion in financial rescue money. The funds will go to local programs to help unemployed homeowners, "under water" borrowers who owe more than their home is worth, or pay lenders to assist borrowers with second mortgages.