WASHINGTON - Here’s some good news for people who’ve had to give the deed on their house back to the bank because of financial problems, or who have done a short sale to avoid foreclosure: You may not have to wait the typical four or five years to requalify for financing to buy another home.

Instead, it could be as little as two years. In a bulletin to lenders April 14, mortgage giant Fannie Mae said it is relaxing its previous rules that prevented loan applicants who have participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for extended periods of time. The new rules are scheduled to take effect July 1.

Homeowners who’ve done short sales - such as under the Obama administration’s new Home Affordable Foreclosure Alternatives program - will also be able to qualify for a mortgage in as little as two years. Though Fannie Mae officials declined to discuss the reasoning behind the changes, the bulletin to lenders said the company hopes to encourage troubled borrowers to work out solutions that avoid the heavy costs of foreclosure.

Fannie’s new standards come with some noteworthy fine print, however. To qualify for a new loan in the minimum two years, most borrowers will need to come up with down payments of at least 20 percent. If they can only scrape together 10 percent for a down payment, the mandatory wait will revert to the former four-year minimum. And if their down payments are less than 10 percent, the wait could be even longer.

On the other hand, if borrowers can demonstrate that their mortgage problems were directly attributable to “extenuating circumstances” - such as loss of employment, medical expenses or divorce - they may be able to qualify for new loans with minimum 10 percent down payments in just two years.

Freddie Mac, Fannie’s rival in the conventional secondary mortgage market, has slightly different policies on mandatory waiting periods following short sales or deeds in lieu of foreclosure. For borrowers who cannot demonstrate that extenuating circumstances caused their earlier financial problems, Freddie Mac will not approve new mortgages in less than four years. For people who lost their houses to foreclosure because of their own financial mismanagement, Freddie’s mandatory waiting period remains at five years.

On the other hand, when there are documented extenuating circumstances, the wait period at Freddie Mac drops to two years following short sales or deeds-in-lieu, and to three years following foreclosure.

Housing and consumer counseling advocates welcomed Fannie’s relaxation of rules that had penalized borrowers who lost their houses following layoffs, illness and other unforeseen catastrophic financial events.

“This is a positive move,” said Marietta Rodriguez, director of homeownership and lending for NeighborWorks America, a national nonprofit network created by Congress to assist with homeowner financial counseling and community development.

“We all know that there are many people who through no fault of their own have to sell” - but were blocked from repurchasing a house for four years or longer, even though they’d rebuilt their credit, had qualifying incomes, and were fully capable of handling a mortgage responsibly.

The main potential complication in Fannie’s new approach, said Rodriguez, is in its credit rehabilitation requirements. To qualify for a new mortgage, Fannie expects borrowers to re-establish their credit sufficiently to get passing grades from the company’s automated underwriting system, which considers credit bureau data among other factors.

But according to Fannie’s bulletin to lenders, it will not consider applicants with “nontraditional” credit or “thin files,” where there is not enough history on file with the national credit bureaus to generate a risk score.

Rodriguez worries that many homeowners who’ve lost their houses during the recent periods of high unemployment and stricter underwriting requirements by banks won’t have sufficiently “traditional” credit histories - home equity lines, revolving credit card accounts, personal loans and the like - to pass Fannie’s test. Following the tough years of the recession, their main credit data may instead be their rent payment histories, telephone and utility bill payments - none of which show up in the national credit bureaus’ files.

Bottom line here: Fannie Mae’s revised standards may well provide an early second chance for homeownership for thousands of borrowers who assumed they’d need to wait much longer than two years. But for those who don’t have traditional credit profiles and sufficient down payments, that second chance will likely be deferred.

By MATTHEW JAFFE and ALICE GOMSTYN

The Treasury Department today released the first report on the performance of loan servicers in the Obama administration’s home mortgage modification program — and the numbers weren’t pretty.

Only 15 percent of eligible homeownershave been offered assistance under the Home Affordable Modification Program thus far, according to the report, and some loan servicers have yet to modify a single loan.

“There are some institutions that have done an infinitesimally small amount,” Assistant Treasury Secretary for Financial Institutions Michael Barr told reporters on a conference call this morning.

“We are going to be requiring ramped-up effort across the board,” he noted. “We’re going to pay more specific attention to ensuring that institutions that have been slow out of the blocks ramp up more quickly and more effectively.”

Among the companies that have not modified any loans were American Home Mortgage Servicing and National City Bank. Bank of America had a 4 percent assistance rate for trial modifications, with Wells Fargo marginally better at 6 percent.

“We’re disappointed in the performance of some of the servicers,” Barr said. “We think they could have ramped up better, faster, more consistently and done a better job of serving borrowers and bringing stabilization to the broader mortgage markets and economy and we expect them to do more.”

Wells Fargo defended its loan modification results in an interview with ABCNews.com today.

“I think what’s important to keep in mind is the HAMP program is a very good program but, relative to the first seven months of 2009, it’s just a piece of the overall story,” said Mike Heid, co-president of Wells Fargo Home Mortgage.

Heid said that, from January to July, the bank modified a total of 240,000 loans. More than 20,000 were modified through HAMP while the rest of the modifications took place through separate Wells Fargo programs.

Bank of America also touted its own loan modification programs, saying that it modified 150,000 home mortgages in the first half of the year.

American Home Mortgage said in a written statement that it had joined HAMP late last month and will begin loan modifications under the program soon. The company said it had completed 64,000 loan modifications through its own programs between July of 2008 and this June.

At least two loan servicers and their parent banks, meanwhile, are drawing fire for not participating in the government’s program at all: Litton Loan Servicing, which is owned by Goldman Sachs, and Barclays’ HomEq Servicing Corp.

“No program can work unless people actually sign on and do it,” said Gloria Swieringa of ACORN, a non-profit low-income advocacy group. “It’s like leading a horse to water and not letting him drink.”

ACORN has labeled mortgage servicers that don’t participate in the program as “homewreckers,” but both Litton and HomEq could escape the designation soon.

A HomEq spokesman told ABCNews.com that the company has signed an agremeent to participate in HAMP and expects “confirmation of our HAMP servicer status momentarily.” Litton said in a statement today that it hopes to “formalize its participation in the Treasury program soon.”

Litton said it has offered more than 35,000 trial modifications using terms “consistent with the Treasury program” since it was announced. Litton modified another 44,000 loans, the company said, in the 12 months before the start of the program.

Under the government’s program, some servicers helped as many as one in five qualified borrowers with a trial loan, according to today’s report. JPMorgan Chase had a 20 percent trial loan modification rate, as did GMAC Mortgage Inc. Saxon Mortgage Services came in at 25 percent and Aurora Loan Services 21 percent. CitiMortgage Inc. has begun modifications for 15 percent of its eligible borrowers.

“There are many servicers that are performing at quite high levels and our expectation is that other servicers will come up to that high level,” Barr said.

Loan Modifications: Banks Have a Long Way to Go

Upon unveiling the plan in February, the administration said that the $50 billion program was intended to help 3 to 4 million borrowers.

They’ve got a long way to go: As of now, 235,000 loan modifications have begun. Officials said today that they want to reach 500,000 borrowers by Nov. 1.

“It’s increasing by 30,000 or more a week,” White House economic advisor Lawrence Summers said on NBC’s “Meet the Press” Sunday. “We expect it to be half a million by Nov. 1 and we’re going to be holding the banks accountable for performance under that program.”

Barr said today that, so far, the pace of modifications is too slow.

“We are more than on track to reach 3 to 4 million borrowers over the next three years,” he said, “but, in our estimate, that is not fast enough and it’s not good enough. We can do better. We want banks to reach borrowers more quickly and we are significantly increasing our efforts to reach borrowers as fast as humanly possible.”

Queens, N.Y., homeowner Jean-Andre Sassine said he was surprised to see JPMorgan Chase’s relatively high loan modification totals. JPMorgan Chase has offered loan modifications to 30 percent of program-eligible homeowners who are more than 60 days delinquent on their mortgage bills and begun modifications for 20 percent of homeowners, according to the government’s report ”That sounds great on paper,” Sassine said. “Yet, I’m having such a hard time reaching someone.”

A Chase customer, Sassine said he has made countless phone calls to the bank, asking for a loan modification after losing his job last year.

Thus far, he’s had no luck. Either his calls aren’t returned or they get lost in a maze of transfers to various departments, Sassine said.

A JPMorgan Chase spokesman said he didn’t have information on Sassine’s case specifically, but acknowledged that the bank still has work to do on its loan-modification system.

“We’ve done a lot of modifications for borrowers and we know there’s unprecedented levels of volume in the industry and there are some people we may not be doing as quickly as they would like or as we would like,” spokesman Tom Kelly said. “But we’ve been adding staff, we’ve been adding technology, we’ve been adding space for staff aggressively for the last six months, so we continue to get better at it.”

Are Banks Really Trying?

Other banks, too, say they’ve continued to devote more resources to mortgage modifications but such claims are met with skepticism by advocates like Ira Rheingold, the executive director of the National Association of Consumer Advocates.

Rheingold said mortgage servicers won’t make real strides in foreclosure prevention until they have stronger incentives motivating them. Right now, under HAMP, servicers receive $1,000 from the government for every borrower that makes payments for three straight months. For three years of regular payments, servicers receive up to $4,500.

In addition, Freddie Mac is conducting random audits to find out whether borrowers are being improperly rejected for loan modifications.

Rheingold and others argue that struggling homeowners should have the option of having their loans modified by a bankruptcy judge — an idea often referred to as a “cramdown.”

The threat of having bankruptcy judges order loan modifications, he said, should be enough to motivate mortgage servicers to pursue more modifications on their own, early on.

“It’s an incentive to get the mortgage industry off their collective rear ends and really get moving here because suddenly [homeowners] will get some leverage,” Rheingold said.

For now, future reports on loan modifications will help make clear if the government’s existing efforts to improve the program are working.

“The proof’s going to be in the pudding,” Barr said.

By Mary Kane

The time may be ripe for a shift in strategy as the foreclosure machine grinds on, and new foreclosure notices reach the troubling milestone of 10,000 per day.

A weak economy has added job losses and falling home values to the mix of toxic loans that prompted the crisis two years ago, making an already difficult situation even more severe. Government measures from foreclosure freezes to loan modifications have only served, so far, to stall the inevitable – and to create an ominous backlog of millions of pending foreclosures. Plus, more than one in five homeowners now owe more on their mortgages than their homes are worth, according to the real estate website Zillow.com. No one can predict with assurance whether those underwater homeowners will keep paying on their loans, or take a walk.

And as bad as things may seem now, there’s still a long period of pain to come: A steady drumbeat of foreclosures, and a stagnant housing market, for the next several years ahead, at a minimum. Some experts see an even more dire picture: Five to 10 years, in California alone, of record high foreclosures. No significant home prices increases nationwide on the horizon in the next year. Or the year after. Or for as long as the next five years. Some 9 million foreclosures are expected by 2012.

While economists search for signs of green shoots, “no one’s really saying anything about this,” noted Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md. publication that covers the lending industry. “There’s really no good news out there, other than we can’t possibly get in much worse shape than we already are.”

Given this bleak scenario, some say it’s finally time for more forceful action. Congress and the Obama administration need to move boldly to stop foreclosures, requiring lenders to go beyond what Calculated Risk dubs “extend and pretend” repayment plans, and actually write down loan balances. And the Obama administration should move quickly to bring more players to the table to pick up the pace of those loan modifications – including the Internal Revenue Service. Servicers might be more aggressive about writing down loans if they’re sure it won’t create tax liabilities for trusts they represent, an impediment that currently stands in the way of getting more mortgages modified, said Kathleen Engel, a Cleveland State University law professor who studies mortgage securitizations.

There’s more to be done: Expand the benefits of the homebuyer tax credit up the income ladder, offering it to move up buyers with existing homes as well as first time purchasers. Even direct government loans to borrowers, to keep them in their homes, shouldn’t be dismissed.

“Now is the time to do something,” Engel said. “There are a lot of things to be very concerned about right now. There are people underwater who aren’t making good on their home equity loans. With job losses increasing, more people aren’t able to make their mortgage payments at all. And REOs (Real Estate Owned properties) are driving down home prices. We really need to be trying some new things.”

Engel’s view was echoed by the Obama administration, which recently chastised lenders for their lack in progress in modifying loans. “We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan said in the letter, which was sent to to 25 mortgage-servicing firms.
Only about 270,000 borrowers have been offered loan modifications under Obama’s Making Home Affordable program, the Treasury Department says – a far cry from its much more ambitious goal of helping 4 to 5 million homeowners rework their loans.

Geither and Donovan weren’t the only ones speaking out. As TWI reported, a small band of House Democrats last week urged for more action beyond voluntary loan foreclosures. Senate Finance Committee Chairman Chris Dodd (D-Conn.) and 19 other Senators also petitioned Geithner to adopt a more aggressive strategy for loan modifications specifically for homeowners with option adjustable rate mortgages scheduled to reset to higher payments over the next four years. In addition, the Washington Post reported the Treasury Department also is putting together a “Plan C” – a new strategy – to head off defaults in commercial real estate and to tackle delinquencies tied to job losses.

It seems like a full frontal assault. But it may not be enough.

SLOWING DOWN THE INEVITABLE

In reality, there’s little political will to force lenders to write down loan balances. Congress defeated mortgage “cramdown” legislation, which would have allowed bankruptcy judges to cramdown, or reduce, the terms of a mortgage to keep a borrower in his home. The Obama administration stood by as the measure failed. Only that small group of House Democrats still wants to revive it. Bailing out homeowners still runs smack into the wall of moral hazard, in the public’s mind, and even the worsening crisis hasn’t changed that. “I don’t know why this is still true, but people are willing to roll over and give billions of dollars to banks, and they get pissed off about the idea of their next door neighbor getting a break,” said Sean O’Toole, president and founder of ForeclosureRadar.com,which compiles foreclosure data for the California market.

Instead of pressing for more loan modifications, it may be time to conclude that all the programs thrown at the mortgage problem haven’t done much to fix it. The most infamous, Hope for Homeowners, intended to help 400,000 borrowers, resulted in just 25 loan closings. Various state and voluntary foreclosure freezes only gave a pause to foreclosures. And most foreclosure prevention programs were created two years ago, when subprime loans were the major cause of foreclosures, not unemployment and a faltering economy.

These days, if you can’t afford your mortgage payment because you just lost your job, it really doesn’t matter whether you have a toxic Option ARM or a standard 30-year fixed loan. You’re still in default.

“The bad economy is what’s driving foreclosures right now,” Cecala said. “Even if there were no Pay Option arms out there, many homeowners would still be in deep trouble.”

Foreclosure prevention efforts, at this point, are “just slowing down the inevitable,” he added. “You can take a look at any one of these programs and you won’t find a lot of value in it.”

The Obama Administration, for example, recently expanded the refinancing options available under Making Home Affordable, to include borrowers who are more deeply underwater on their loans. It sounds good -  but it’s unlikely to pan out, Cecala said. Borrowers may not qualify for refinancings, under new underwriting guidelines from Fannie Mae or Freddie Mac that are far stricter than when they originally applied for their loans. Or borrowers may have to pay such high fees or rates that it won’t make the refinancing worthwhile. In places like California and Florida, some homeowners are so far underwater they still won’t qualify.

THE NUCLEAR OPTION

The big question, as Cecala notes, is whether foreclosures can be stopped at all. Which brings up the nuclear option: Unleash the pent up foreclosures and get the pain over with. Consider the backlog in California alone. More than 3 million households are expected to end up underwater eventually, according to O’Toole. As of now, some 851,000 households are delinquent on their mortgages. Of those, 264,977 already have received a foreclosure notice – but their properties have yet to be sold at auction. Only 22,245 foreclosures were completed in June, Foreclosure.com said.

Given that possibility that half of the the 3 million underwater homeowners or more also will eventually lose their homes, that means that working through the entire backlog could involve between five to 10 years of record high foreclosure levels, O’Toole said.
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Nationwide, the picture isn’t much better. After hitting a high point of about 900,000 in November 2008, REO inventory, or bank-owned foreclosures, slowly decreased over the last six months, down to about 770,000 in May, according to RealtyTrac, an online foreclosure database.

But don’t get your hopes up just yet.

“We believe the reason for that decline is largely due to the various foreclosure moratoria and state laws extending the foreclosure process that have been in effect in recent months,” said Daren Blomquist, a RealtyTrac spokesman. “As some of those moratoria were lifted in March and April we saw a substantial spike in initial foreclosure notices and we believe that will translate into a spike in REOs as well over the next several months.”

The bad news continues:  “In addition, we believe there is still a pent-up supply of delinquent loans that have not even hit the foreclosure process yet because banks are taking longer to start the foreclosure process after a loan goes delinquent – probably partly because they are overwhelmed with the volume of delinquent loans and partly because they are more aggressively trying to modify or refinance loans rather than foreclose.”

Blomquist added that the “twin threats” of risky loans and high unemployment will ensure a steady drumbeat of high foreclosure activity, for at least the remainder of this year.

The radical approach would be to stop staving all this off, take the pain, push the foreclosures through the system without delay, and get to the bottom. In California, at least, that could clear out the foreclosure backlog in about two years, O’Toole estimated.

“I’m not necessarily advocating that we should simply dump all the foreclosures at once – I actually think that could be disastrous,” he said. “But I think dragging them out over the next 5 to 10 years is an equally bad choice.”

But if there’s little political will to bail out homeowners, there’s even less stomach for announcing a strategy to bail on them entirely. It’s not the sort of thing that can be said in pubic. Even if there’s some logic to it.

AN ENTIRELY NEW DIRECTION

And that opens the door for a third way.

Alan Mallach, a senior fellow at the National Housing Institute and the Brookings Institution, took a close look at the housing market in Phoenix, where prices have declined by as much as 60 percent in the past few years.  Houses that sold for a quarter of a million dollars now go for $90,000 or so in the booming REO market. Buyers – both investors and individuals – are realizing that at those prices, they have options, if they are willing to be patient. They can hold on to those homes for six or eight years, rent them out until they earn their money back, and wait until they can possibly sell them at a profit.

Most importantly, the new owners often are more than willing to rent back the homes to their former owners, a situation that benefits both sides. Borrowers can stay in their homes, with rent payments they can afford. The homes don’t sit vacant, abandoned, or vulnerable to vandalism, which can drive down surrounding property values. “You don’t kick the person out,” Mallach said. “And many of the investors say it’s an advantage not to have to look for a new tenant.” The situation, he said, provides evidence of “the beginning of some sort of leveling off that’s going on” in neighborhoods hit with foreclosures, at least in Phoenix.

Based in that experience, Mallach these days reminds local governments and neighborhood development groups not all investors are enemies, despite their reputations. Communities can both encourage investors as partners in buying and fixing up bank-owned houses – and warn them they’ll come down hard if they sink too far into speculation. And there are more encouraging signs at the local level. As Philadelphia, and some other cities have found, mandatory face to face foreclosure mediation between borrowers and servicers has proven to help avoid foreclosures, without dragging out the process.

A combination of these kinds of ideas – smaller scale, targeted to the needs of particular markets – may a quicker and more effective blueprint for tackling the crisis, especially in the absence of an aggressive government approach.

“Maybe we’re coming to the realization that we can’t loan mod our way out of this,” Mallach said. “There’s no magic solution. There’s no government riding in on a white horse to buy up all the bad assets.”

THE WILD CARD

Congress and the administration, in fact, haven’t exactly come up with anything “radical and bold” yet to tackle the crisis – and it’s unlikely they will turn around and do so now. Instead, Mallach noted, Realtors, the real estate industry, and some economists are spending unnecessary time and energy trying to declare a bottom to the crisis and look for any evidence of good news. It’s a great time to buy a house, they insist.

But there are still 9 million foreclosures expected by 2012, according to the Center for Responsible Lending, and a continuing decline in home prices for the majority of housing markets for at least the next two years, says a report by mortgage insurer PMI.

As Malllach noted, policies to encourage renting are one option to counter all this. Even with all their limitations, loan modifications could be another. It’s “a really crucial time” to jumpstart them right now, said Cleveland State’s Kathleen Engel. Servicers finally have gotten fully staffed and up to speed, after a slow start. Clearing away potential tax liabilities for trusts due to aggressive loan modifications could help, she said. So could ratcheting up the pressure on lenders and servicers alike to complete more of them.

But challenges remain. REOs are driving away other sales, keeping downward pressure on home prices, Mallach noted. Stronger markets that have been immune so far to plunging home prices, such as New York City, New Jersey, and the Philadelphia suburbs, still remain at high risk for a downward spiral. Frustration keeps growing over a lack of progress in anything being done to stem foreclosures, creating anger in neighborhoods, and even a movement to put squatters in vacant homes.

Beyond that, underwater homeowners remain a huge wild card, with the chance that a significant number of them will stop paying their mortgages in the near future clouding any hope for a quick recovery.

When it comes to the foreclosure machine, things are probably even worse than they seem. That’s a starting point for any strategy to challenge a housing crisis isn’t ending anytime soon.

WASHINGTON (AP) — Can’t afford your mortgage payment? If the bank won’t take your call, your member of Congress just might.

Several lawmakers whose districts are drowning in foreclosures are taking unprecedented steps to help people stay in their homes, including picking up the phone themselves to negotiate with banks on behalf of their constituents.

The pain of being put on hold for an eternity can be an educating experience for a member of Congress.

As a body, Congress has failed to come up with a broad fix for the foreclosure crisis. So some lawmakers are helping homeowners one at a time and seeking creative ways to make a difference in their districts.

Rep. Elijah Cummings, a Maryland Democrat whose Baltimore district has been walloped by unemployment, arranged for 19 banks to set up shop at Morgan State University on Saturday to work with homeowners struggling to pay their mortgages.

Cummings is asking people to come to his anti-foreclosure fair with recent pay stubs, tax returns, their monthly budget and any late notices or foreclosure threats they’ve received by their banks. He predicted 500 people would show up, a turnout he hopes will help convince the White House that federal money is needed to bailout homeowners directly.

“We may very well be reaching the point of a tsunami of foreclosures,” he said.

While Maryland has been hit hard, with more than 390 foreclosure fillings in Baltimore alone in April, California is in the worst shape. Some 342,000 U.S. properties fell into foreclosure in April with 96,500 of those filings — more than one in four — in California, according to RealtyTrac, a Web-based company that compiles data for most U.S. counties.

Rep. Maxine Waters, who represents Los Angeles, has called mortgage lenders directly to seek lower payments for her constituents.

Waters said it’s frustrating. She’s spent more than an hour on hold before, listening to music and getting transferred to different departments.

She said the process can be worse for homeowners who are only slightly behind in their mortgage payments. A grossly delinquent homeowner might get a specialist on the line who can modify the loan, Waters said. But other cases are handled by someone who merely threatens homeowners to pay up.

In at least two cases, the congresswoman said, she wasn’t able to resolve the situation until she appealed directly to the chief executive officers of Bank of America and Wells Fargo. Both banks responded favorably, with Wells Fargo even sending Waters a long letter of apology.

“Trying to contact the servicers is an absolute nightmare for anyone,” even a member of Congress, she said.

While liberal Democrats like Cummings and Waters want to force banks to absorb losses and keep more people in their homes, other lawmakers see that as a recipe for disaster. Many banks already are on shaky footing because of the mortgage crisis. Forcing the industry to take even bigger hits could further clog credit lines or drive up interest rates for other customers.

Last month, Republicans and conservative Democrats defeated a proposal by Sen. Dick Durbin, D-Ill., that would have given judges the power to lower mortgage payments for people declaring bankruptcy. President Barack Obama had once promised to help push the measure through Congress but backed off after banks warned that it would devastate the industry.

In the end, Obama signed a “Hope for Homeowners” bill that makes it easier for people to qualify for a program featuring government-insured mortgages. That program, however, relies on voluntary participation by lenders and so far has been largely unsuccessful.

Treasury officials say the program needs more time.

Meanwhile, more foreclosures are afflicting wealthier communities hit by job losses. Whereas the subprime crisis once seemed exclusive to minority communities like those in L.A. and Baltimore, defaults on prime fixed-rate loans — considered the least risky — have doubled in the past year, says the Mortgage Bankers Association.

The lack of a tough antidote has left congressional offices and banks alike flooded with requests by financially stressed homeowners. Banks sometimes agree to hold off on foreclosing while negotiating with the customer. But homeowners often say they can’t get through to talk to anyone at the bank who can help them.

Bank representatives say they are playing catch-up in the crisis.

JPMorgan Chase & Co. said it recently added some 950 loan counselors to its staff and is hiring hundreds more each month. The bank also has set up a hot line designated solely for congressional staffers trying to ensure their constituents reach a loan counselor.

Other banks are trying as well to become more responsive to congressional offices. Cummings asked a dozen of the nation’s biggest banks to assign an employee to work directly with his office. Most agreed.

In March, Cummings hired a new staffer of his own to work foreclosure cases in his district. So far, the office has been able to help 18 homeowners and is working with some 120 more, according to a spokeswoman.

House ethics rules caution lawmakers about getting involved in private disputes, but don’t explicitly prohibit them from doing so.

Cummings and Waters say they have no choice but to intervene until the federal government is willing to do so.

Cummings said the mortgage crisis will lift. But he worries thousands more people will be homeless by then.

“It’s not whether the sun will come out,” he said. “It will. But the question is, what will the landscape look like when it does?”

Fame and fortune haven’t kept these VIP homeowners from sliding into delinquency.

It seems like just yesterday–excess was in and celebrities lived it up, buying lavish cars, expensive toys and over-the-top homes. Now, they’re losing it like everyone else.

Victoria Gotti, daughter of deceased Gambino family crime boss John Gotti, let audiences into her lavish $4.2 million Long Island estate for her reality TV show, Growing Up Gotti. But now, the mafia princess turned New York Post columnist is behind by $650,000 on her mortgage and will likely lose her home.

Part of the problem for some celebrities is that they were allowed to borrow huge amounts of money because of their sizable paychecks during boom times. But Hollywood is fickle, and now some VIPs are struggling with smaller income streams and mortgages worth more than what their homes are currently worth.

In Pictures: Celebrity Foreclosures

Some of them could still manage payments but quit paying because they didn’t see enough upside. Former baseball slugger Jose Conseco admitted to simply walking away from his $2.5 million, 7,300-square-foot pad because its value is falling but his mortgage payment isn’t. “It didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else,” the steroid snitch and reality TV star said last May when he announced plans to quit his mortgage contract.

But even foreclosure is different for celebrities. “My situation was a little more different than most,” said Conseco. “I decided to just let it go, but in most cases and most families, they have nowhere else to go.”

It’s a hard-knock life for Roc-A-Fella Records co-founder Damon Dash. After getting slapped with a foreclosure notice last year–Dash couldn’t make his $78,500 monthly mortgage payment on two lower Manhattan condominiums that he bought for $7.3 million–his fashion designer wife Rachel Roy filed for divorce in March.

Faced with hundreds of millions in debt, the gloved one needed a helping hand to hold onto his Disney ( DIS - news -people )-themed Never Land Ranch. After decades of wild spending sprees and a declining career, Michael Jackson narrowly escaped foreclosure on his $25 million Santa Barbara estate in March by taking a loan from Los Angeles-based private-equity outfit Colony Capital.

The premise is that the pop star will pay back his creditors by coming out with new music and touring. If that doesn’t pan out, his valuable collection of Beatles songs and other collectibles will do the trick.

New York socialite Veronica Hearst is at the ultra-high end of famous foreclosure victims. The widow of publishing mogul Randolph Hearst lost her $45 million beachfront Florida residence in February. The palatial 52-bedroom second home was sold at a foreclosure auction for $23 million to Ridgefield, Conn.-based New Stream Secured Capital.

Former Phillies and Mets star Lenny Dykstra built up a reputation as an investment guru after retiring from baseball. Unfortunately, he didn’t have enough financial savvy to keep his books in order. Dykstra’s disastrous foray into publishing–a lifestyle mag for pro athletes called The Players Club–resulted in tens of millions in debt according to reports, putting his $18.5 million mansion in Thousand Oaks, Calif., in jeopardy.

MESA, Ariz. — She had seen the advertisements for the new government program offering relief. She had heard President Obamapromise that help was on the way for homeowners like her, people who had lost jobs and could no longer make their mortgagepayments.

But when Eileen Ulery called her mortgage company — Countrywide, now part of Bank of America — the bank did not offer to alter her mortgage. Rather, the bank tried to sell her a new loanwith a slightly lower monthly payment while asking her to pay $13,000 toward the principal and a fresh $5,000 in fees.

Her problem was that she did not yet present a big enough problem to merit aid.

Yes, she was teetering toward delinquency. She was among millions of homeowners rapidly sliding toward danger for whom the Obama administration had devised an aid program — some already in foreclosure proceedings, others headed that way as they ran out of means to make their payments. But unlike those in imminent peril of losing their homes, Ms. Ulery had never missed a payment.

“I don’t know who this bailout is helping,” she said. “We’ve given these banks all this money and they’re not doing what they say they’re doing. Something’s not working right. They keep saying they’re doing all this, but we don’t see it down here at this level.”

More than three months after the Obama administration outlined a new program aimed at rescuing millions of distressed homeowners by compensating banks that modify mortgages, Ms. Ulery’s experience illustrates the mixture of confusion, frustration and limited assistance that now reigns.

Through many months of wrangling over the fate of the financial system, with hundreds of billions of taxpayer dollars dispensed on bailouts, distressed homeowners have waited for their own rescue amid talk that it was finally on the way. Modifications of so-called subprime and Alt-A mortgages — those made to people with tarnished credit — actually fell by 11 percent in May from April, according to research by Alan M. White at Valparaiso University School of Law.

A Treasury spokeswoman, Jenni Engebretsen, confirmed that homeowners like Ms. Ulery — current on their mortgages yet grappling with a hardship like unemployment — were eligible for loan modifications under the program. She said mortgage servicers had offered to modify more than 100,000 loans since the department announced the program.

But how many loans have been modified? Ms. Engebretsen declined to say, noting that the Treasury was working with mortgage companies to “fine-tune reporting systems.”

A spokesman for Bank of America Home Loans, Rick Simon, confirmed that the bank offered Ms. Ulery refinancing and not loan modification. The bank is now focusing on modifications only for those borrowers “who are already in severe threat of foreclosure,” he said.

“We’re still putting the systems in place to handle people who are current on their loans,” Mr. Simon said, declining to say how many loans Bank of America had modified. “It’s still very, very early in the program.”

Ms. Ulery, 63, is the face of the latest wave of troubled American homeowners, a surge of people in financial danger not because of reckless gambling on real estate, but because of lost income.

Far from being one of those who used easy-money loans to speculate on homes proliferating across the desert soil of greater Phoenix, she has lived in the same modest, stucco-sided condo in suburban Mesa for a dozen years. She bought the two-bedroom home in 1997 for $77,500.

For two decades, she worked as an executive assistant at nearby Arizona State University, bringing home more than $1,000 every other week — enough to pay the bills.

Round-faced, wry and given to staccato bursts of laughter, Ms. Ulery regularly visits yard sales, seeking out plates and patchwork quilts for her collections. She takes pleasure in her two grandchildren and her beagle. She enjoys an occasional glass of wine, favoring a $6 merlot that comes in a screw-top bottle.

“I’m not an extravagant-type person,” she said. “I see these big houses all around, and they’re beautiful, but I’m comfortable in my little condo.”

Like tens of millions of other American homeowners, she added to her mortgage balance as the value of her condo swelled, at one point exceeding $200,000. She refinanced to pay off some credit cards and settle into a 30-year, fixed-rate loan. Later, she took out a home equity line of credit to buy a new Hyundai. She refinanced again in 2007, borrowing $20,000, mostly for a new roof.

Over the years, her monthly payment swelled from about $600 to more than $1,000. With planning and self-control — she tracks her monthly expenses on a color-coded spreadsheet — she always came up with the money. “I’ve never been late,” she said.

But the equation broke down last year, when she lost her job in university budget cuts. Ms. Ulery received six months of severance. She arranged a monthly $1,500 Social Security check. But when the severance ran out in October, her mortgage finally exceeded her limited means.

With so many people out of work, and with her doctor counseling rest for a stress-related illness, she did not pursue another paycheck, negotiating to have her university pension begin earlier. She has been leaning on credit cards.

Across the country, millions of homeowners in similar straits have been sliding into delinquency. Some owe more than their houses are worth.

Ms. Ulery is among that unhappy cohort — her house is worth about $122,000, and she owes $143,000 — but walking away is not for her.

“In my family, we don’t do that,” she said. “You pay your bills. And I wanted my home.”

In March, she heard about the Obama administration program. The Countrywide Web site directed her to a government site, makinghomeaffordable.gov, she said. There, she took a test to determine her eligibility for a loan modification.

Was her home her primary residence? Check. Was she having trouble paying her mortgage? Check again, and so on until the screen told her that she might qualify.

In April, she called the bank. The representative said the bank was not doing modifications for people like her, she recalled. He shifted the conversation: if she handed over $18,000, he could lower her payment to $967 from $1,046. Her interest rate would actually increase slightly, with the drop largely because she was putting down more money.

“I just laughed,” Ms. Ulery said. “It was a really good deal for them.”

To which she poses her own question: What sort of deal is it for the American taxpayer? As she sees it, the same banks that generated the mortgage crisis are now getting public money to fix it, while doing little more than seeking new fees.

“I don’t think the government gets it,” she said. “These are the same people you couldn’t trust before.”

Here’s a bleak milestone: there’s been more the 1 million foreclosures filed in the U.S. so far this year, according to a count by the Center for Responsible Lending.

Not all of those foreclosures will result in evictions, but the statistic offers a sobering illustration of the magnitude of the problems that still face the housing market.

Some worry that the sheer volume of foreclosures could swamp the government’s efforts to help underwater borrowers refinance and to modify loans of distressed homeowners. Three weeks ago, Treasury department officials estimated that more than 55,000 homeowners had been helped so far by the Obama administration’s loan modification plans, including some 15,000 borrowers who were in trial modifications with Chase Home Mortgage, and 3,000 who were in a trial with Wells Fargo.

The CRL, a nonprofit research and lobbying group that favors aggressive policies to help troubled homeowners, estimates that there are 6,500 new foreclosures filed every day. The center estimates that there will be 2.4 million foreclosure starts in 2009, based off of figures from the Mortgage Bankers Association that are adjusted to reflect the entire mortgage market.

The CRL supports the Obama administration’s efforts to set standards for banks to modify loans, where the government will match in part the costs to the servicer to lower mortgage payments to 31% of a borrower’s income. The CRL warns that “loan modifications are not likely to succeed with superficial fixes that fail to lower a homeowner’s monthly payment.”