GOP Claims Mortgage Rescue Books Are Cooked

Mortgage rescue debate turns on what the definition of "sustainable" is.

March 17, 2010— -- Republicans are charging that the Obama administration has cooked the books on its home mortgage rescue program to make it look like it's a success when, they claim, it is actually a flop.

Even some Democrats are starting to doubt whether the Home Affordable Modification Program is an historic success or a colossal failure.

The Obama administration announced last week that banks were finally becoming more generous to desperate homeowners and the number of mortgages granted lower finance rates had increased in February by 45 percent.

Now that over 1.3 million homeowners have received offers to participate in the program, the administration said they are now more than a third of the way towards reaching the plan's goals.

The White House got to those encouraging numbers by changing the definition of what they consider to be a help to a homeowner in danger of defaulting on a mortgage, Republicans argue.

The $75 billion Home Affordable Modification Program, which was launched last year, provides federal incentives for banks to lower the mortgages of borrowers.

Under the terms of the program, a borrower first receives a temporary mortgage modification. If the borrower makes payments throughout the 90-day trial period, the loan modification can be made permanent.

A government website outlining the program says the administration's goal is to "reach up to 3-4 million at-risk homeowners" and "reduce the amount homeowners owe per month to sustainable levels."

The problem seems to be what the definition of sustainable is.

If the number of homeowners receiving temporary loan modifications count towards the program's goal of three to four million, then the program is on track to fulfill its goals. As of the end of February, around 1.3 million homeowners have received temporary modifications.

GOP Claims Obama Mortgage Rescue Plan a Flop

Rep. Darrell Issa, R-Calif., and Rep. Jim Jordan, R-Ohio, believe that only a homeowner who receives a permanent modification should count as being helped by the government program.

In a letter to Treasury Secretary Tim Geithner, they write that the program's "true goal, as Treasury initially described it, was 3 to 4 million permanent – not temporary – modifications. Trial mortgage modifications that fail to mature into permanent ones are not in any way 'sustainable' nor do they 'prevent' eventual foreclosure."

If only the number of homeowners receiving permanent loan modifications count towards the program's goal of three to four million, then the program is a long way from ever fulfilling its goals.

As of the end of February only 170,000 homeowners had received permanent modifications.

The GOP lawmakers cite that just last month Treasury Department official Phyllis Caldwell appeared to define "sustainable" help for borrowers as permanent mortgage modifications.

"We face many challenges [including] helping more borrowers in trial modifications convert to permanent modifications so sustainable help can be offered," she told a House subcommittee hearing on Feb. 25.

Not so, a Treasury spokesperson told ABC News.

The goal of helping three to four million homeowners by the end of 2012 "has ALWAYS been for offers extended to borrowers," a Treasury spokesperson said in an email to ABC News. "The goalpost has never moved."

The spokesperson pointed to a 2009 report from the Government Accountability Office that said Treasury had estimated that around 3.9 million borrowers would likely be offered trial mortgage modifications. At the time Treasury also noted that some borrowers will not succeed in converting their temporary modifications into permanent ones.

The conversion problem has been plaguing the program in recent months. As of the end of February Treasury reported a 32 percent conversion rate, but that is far below the predictions of an agency official last fall.

Even Democrats Doubt Success of Obama's Mortgage Rescue Plan

In testimony before the Congressional Oversight Panel on Oct. 22, Treasury official Herb Allison stated that the agency viewed a 50 percent conversion rate as "a bare minimum."

"Based on past experience with different types of modifications which were not materially reducing people's monthly payments, you saw a failure rate of about 50 percent, so we could use that as a bare minimum success rate," Allison said. "But we'd like to achieve a much higher rate. If we were to get to something like 75 percent, which is an aspiration, we would deem this quite a successful program."

But even Democrats on Capitol Hill are starting to view the program as being far from successful.

Rep. Debbie Wasserman-Schultz of Florida told Geithner at a hearing on Tuesday that Treasury needs to crack down on banks who are not helping homeowners.

"They jerk people around," she said of the banks. "They lead them on. They tell them they're going to work with them. They tell them to put in an application. Months go by."