Mortgage program part of the problem?

By MSN Money staff

The saying goes, "The road to hell is paved with good intentions." Many American homeowners can relate.

Those hoping to avoid foreclosure may feel like they are walking that very road as they try to navigate President Barack Obama's Making Home Affordable program. The $75 billion program, established in February 2009, aims to protect homeowners from foreclosure and help banks get some of their money back.

But politicians and economists from all sides take issue with the program, saying it hurts not only homeowners but financial institutions as well. This video package looks at three sides of the issue:

• Borrowers themselves are part of the problem, often providing inaccurate and incomplete information. John Courson, the CEO of the Mortgage Bankers Association, says more than 60% of borrowers in trial modifications have failed to submit accurate, or any, documentation to servicers.

• Homeowners then face months of silence and delay, meaning relief may arrive too late to do any good. Jason Tucker has been waiting for more than 10 months to learn whether he has been approved for Making Home Affordable. "I thought it sounded very hopeful," Tucker tells CNBC.

• Programs such as Making Home Affordable only stall the inevitable, critics say, by helping people afford their homes now when they likely won't be able to in the future. "(The program) is being overwhelmed by the magnitude of the problem," Moody's Economy.com's chief economist, Mark Zandi, tells CNBC.

The program restructures troubled home loans with extended terms or reduced interest rates. Homeowners who are current on their mortgages but unable to refinance because values have fallen have a refinancing option.

• Compare refinancing offers

The problem? Homeowners may be getting lower interest rates now -- under the program, loan modifiers can cut interest rates to as low as 2% and extend the term of the loan up to 40 years -- but interest rates will eventually increase again.

Also, as home values decrease, owners may find themselves stuck paying for a loan worth less than the value of the home, rather than just going through foreclosure.

Many homeowners are also unaware that participating in Making Home Affordable could affect their credit. For example, in some cases the modified "trial" payments, established before your modified payment is permanent, can show up as a 30-day late payment, which can drop your credit scores.

Some are still hopeful. Michael Barr, the Treasury Department's point man for Making Home Affordable, says the program has made enormous progress. He says the government's mortgage-modification effort has reached about 75,000 Americans, saving them an average of $550 a month. But Barr also says borrowers and banks need to finish the necessary documentation for many of these modifications to move forward.

About 750,000 homeowners had received temporary loan modifications from Making Home Affordable through November. But only 31,000 homeowners had gotten permanent relief. According to Moody's Economy.com, in 2009 more than 2 million American homes were lost to foreclosure. That number is expected to grow to 2.4 million this year.

[Related content: mortgage, foreclosure, Barack Obama, bankruptcy, loans]