HUD mortgage aid program stumbled from the start

— -- "Congratulations" began the letter, dated Sept. 27.

Lorraine and Jude Austin, who had battled against foreclosure for two years, were "approved" for $48,113 in federal mortgage assistance, read the letter from the Department of Housing and Urban Development.

It cautioned there was no "guarantee" that funding would come through and that final verification was needed.

Almost three months later, the Austins still don't have final approval for the "emergency" loan they're counting on to avoid losing their Scott, La., house.

"We're just waiting," says Lorraine Austin, 47.

Similar countdowns are likely underway in two dozen states as HUD makes final decisions on almost 5,000 applicants preliminarily approved for up to $50,000 each from the $1 billion Emergency Homeowners' Loan Program.

That the closing days of the EHLP program are marred with last-minute beat-the-deadline suspense is no surprise. The program — announced with fanfare last year as a lifeline to homeowners pummeled by a job loss or an income hit — stumbled from the start as HUD took too long to launch it, underestimated challenges, overestimated the number of applicants expected and then ran out of time, say consumer housing advocates and congressional lawmakers who pushed for the funding.

With 13 million consumers unemployed and 4 million mortgages in foreclosure or seriously delinquent, more than half of the $1 billion EHLP funding went back to the U.S. Treasury because the funds didn't get allocated to homeowners before the Sept. 30 deadline.

Instead of helping 30,000 homeowners, EHLP will help about one-third that number, HUD data indicate.

"This was a bungled program," says Carol Finegan of the Brooklyn Housing & Family Services agency.

"HUD dragged its feet," says Rep. Barney Frank, D-Mass., who worked to get the funding.

HUD, which declined to make an official available for an interview for this story, said in congressional testimony, previous interviews and e-mail responses to questions that it worked hard and as fast as possible to make the program successful and fair.

"We understand that there is disappointment that the program is not reaching more families," said Carol Galante, HUD acting assistant secretary for housing, in congressional testimony in October. "We, too, are disappointed and recognize that the program setup took longer than anticipated."

The program, one of several federal foreclosure-prevention programs, was new and involved hundreds of housing counselors and mortgage companies. It required new regulations, financial controls, employee training, building of complex data systems and agreements with lenders, HUD said in an e-mail replying to USA TODAY's questions.

Eligibility restrictions disqualified far more people than expected, HUD says. About 100,000 people applied, Galante testified. Three-quarters of the ineligible applicants were disqualified by the requirements set by Congress, she added.

"We modified the process to benefit as many homeowners as possible within the strict guidelines of the law," HUD said Wednesday in an e-mailed response to questions from USA TODAY.

HUD officials expected so many people to apply that they created a lottery to decide who could submit applications. In the end, HUD didn't get enough qualified applicants even after it extended the application period.