Chris Slaman thought he was living within his means. When he purchased his home for $650,000 four years ago, he put down $120,000 and took on a $3,000 a month mortgage.
Then, like so many other Americans, he lost his job. As his savings dwindled, what once seemed reasonable gradually became impossible.
Slaman landed another engineering job a few months later but it was too late to recover.
"It just sort of snowballs," said Slaman, 45. "You can't see the light."
In order to get a loan modification, he purposely stopped making payments. His lender, IndyMac – which was taken over by the government – offered him a loan modification that would have cut his monthly payment from $3,000 to $2,600.
But there was a catch, a big one. The bank wanted him to put two year's worth of property taxes in escrow. He would have six months to build up that escrow fund, but for those six months his monthly payment would be $3,900.
"For us, this was more money than we were paying from the beginning," said Slaman, who lives in Santa Clarita, Calif. "That was the deal breaker. I never attempted to make another payment."
Now he is ready to hand over the keys and look for a rental property.
Across the country, through this recession, it's a similar story.
The administration got 14 loan servicers -- including five of the largest -- to voluntarily sign on to the program. Under the plan, the government partially subsidizes interest-rate reductions for eligible borrowers so that their monthly payments are 31 percent of their pre-tax income.
Two weeks ago, the Treasury Department announced that 55,000 people had received loan modification offers through the $75 billion program.
Bruce Marks, CEO of the Neighborhood Assistance Corporation of America, a non-profit community advocacy and homeownership organization, calls that a "failure."
Banks and Loan Modifications
Even if the banks are willing to amend these loans – and he isn't convinced they are – they don't have the infrastructure or policies in place to make the changes.
"You are talking about an industry that is really incapable of stopping the massive amount of foreclosures," Marks said.
Crystal Erickson, 34, is one of those people waiting for help. She had an adjustable-rate mortgage that she hasn't been able to pay for nearly two years.
The Portland, Maine, resident has tried to get several loan modifications and is now seeking help through Obama's program.
"It's so frustrating because it feels like the solution is so simple and it's a mutually beneficially solution," Erickson said. "Whenever you call, often the people on the front lines aren't given any of the power or tools to change things. … Since the new administration has come in, they are more pleasant over the telephone. But they're no more helpful."
Erickson said she routinely calls and gets conflicting information, depending on who she's talking to that day.
Dianne Thomson, a lawyer for the National Consumer Law Center who trains advocacy groups to help people obtain modifications, said the biggest problem so far has been getting loan servicers to comply.
"Lots of servicers are refusing to do modifications," Thomson said, including many that originally signed on to Obama's plan.
Nobody tracks how many people seek modification and get rejected but Thomson said about one-fourth of those who housing counselors believe should qualify don't.
Thomson said the program is not bad, but not the plan she "would have designed if I was king of the world." There also needs to be more focus on "meaningful principal reductions," she said, given falling housing prices.
Still, Thomson said there are merits to the plan and it is too early to judge it a success or failure. Those who were granted modifications are just starting to make payments at their new rates.
The biggest problem she said is a lack of oversight of the program.
Obama's Housing Rescue Plan
"When they don't get a modification, they don't have any place to get redress," she said. The Federal Trade Commission is "not equipped to review if a modification should have been offered. … They really are not at this point tasked or equipped to deal with this."
Ira Rheingold, executive director of the National Association of Consumer Advocates, said that Obama's plan "goes in the right direction" by reducing mortgage payments to an amount people can afford.
But there are some concerns for him: the program aims for five-year modifications, which could cause problems down the road. There is also the issue of how to deal with homes that have second liens.
Chet Randall, coordinator of the foreclosure-prevention project at PineTree Legal Assistance in Maine, said that loan servicers are still severely understaffed.
"We are still struggling to get responses and loan modifications," he said.
But Randall said there a bit of hope. He is now getting direct phone lines to call back bank representatives and is at least hearing from reps quicker. If they are able to do anything about the loans however still remains to be seen.
Kimm Tynan, a staff attorney in the consumer housing unit of the Philadelphia Legal Assistance, said her group is "seeing mixed things."
We certainly have many clients who are in the pipeline right now, who are being evaluated," Tynan said. "We're also seeing a lot of problems with people being able to access the program."
The biggest problem seems to be lenders and servicers not understanding – or saying they don't understand – who is and is not eligible for the program."
She said there needs to be some ombudsman in the administration monitoring the program.
"There's got to be somebody policing the servicers," she said.
Lenders Don't Know How to Implement Plan
The whole point of the program was to standardize this process. The problem, Tynana said, is that many servicers don't understand it well enough to implement it.
"Many of us are very pleased with the details of the program and the structure of the program on paper," she said. "It's the implementation that gets tricky."
As part of the qualification process, the lender or loan servicer does a net present value test, basically a formula to figure out if the lender will make more money by foreclosing or modifying the loan.
The catch is, the public doesn't know the formula, making it harder for advocates to determine whether the servicers are doing an adequate job.
"There is no accountability," she said, "or way to test the servicer's calculation."