July 16 (Bloomberg) -- The Obama administration may be “just going through the motions” in dealing with the deficiencies of U.S. anti-foreclosure programs, leaving a record number of struggling homeowners with few options for relief, Senate Banking Committee Chairman Christopher Dodd said.

“I’ve had a lot of frustrations in trying to come up with plans that work,” Dodd, a Connecticut Democrat, said during a break in a hearing on the programs today in Washington. “I’m concerned that we’re just going through the motions. I don’t get the sense of urgency.”

A Bank of America Corp. executive told Dodd’s committee that the administration stokes “confusion and delay” among lenders when it announces anti-foreclosure plans before completing the program details, while Senator Richard Shelby of Alabama complained that the programs have fallen short of goals.

“Existing modification programs have not been very effective,” Shelby, the ranking Republican on the Senate Banking Committee, said. “Sustainable policies must be based on economic realities and facts, not wishful thinking.”

The administration has “encountered a few difficulties” in starting the Making Home Affordable refinancing program for troubled borrowers, said William Apgar, an adviser at the Housing and Urban Development Department. The program, intended to help as many as 4 million people, has so far extended modification offers to about 325,000, he told the committee.

Record Foreclosures

More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, Irvine, California-based RealtyTrac Inc. said today in a statement. That’s a 15 percent increase from a year earlier.

“Many consumers have had trouble reaching their servicers and receiving a timely response from servicers after they have submitted applications for modification,” Apgar said. Others have complained that lenders have given them inaccurate or misleading information.

Allen Jones, a default-management policy executive at Bank of America, said part of the problem is that the administration keeps announcing programs without providing the rules for how borrowers and lenders should proceed. That practice “creates immediate demand with insufficient lead time for operational readiness,” Jones said in his testimony to the committee.

“This can lead to negative customer experience and, ultimately, public backlash against the programs,” Allen said.

‘Stop the Bleeding’

Borrowers are still awaiting the final details of a plan announced in April that would let homeowners rework home-equity debt. Other elements of a broader plan announced in February have been slow to reach the public.

Senator Jim Bunning, a Kentucky Republican, asked “when are you going to stop the bleeding?”

As many as half of the at-risk mortgages have second liens, Apgar said, adding that a home-equity loan can increase the likelihood of default because it may raise a borrowers’ monthly mortgage payments beyond affordable levels.

“The issuance by Treasury of its brief and limited guidelines for the second-lien and short-sale programs months before their comprehensive rules have been finalized or even drafted has led to a great deal of confusion and delay in the industry and with the public,” Allen said in his testimony.

Herb Allison, the Treasury Department’s assistant secretary overseeing the $700 billion U.S. Troubled Asset Relief Program for financial companies, said while the administration has made substantial progress, he realizes that much more needs to be done to help forestall record foreclosure filings.

‘Imminent Risk’

The Making Home Affordable program requires banks that received federal aid from the Treasury’s Troubled Asset Relief Program, or TARP, as well as mortgage-finance companies Fannie Mae, Freddie Mac to lower the monthly payments for borrowers at “imminent risk” of default. Banks can lengthen repayment terms, lower interest rates to as low as 2 percent and forbear outstanding principal, among other methods.

Charlotte, North Carolina-based Bank of America, the biggest U.S. bank by assets, took $45 billion in U.S. aid through TARP amid last year’s financial crisis.

Allen said the Treasury could improve the effectiveness of the program by giving loan servicers advance notice of new rules, allowing the industry to review program changes before they take place and completing details before making announcements.

Bank of America has almost doubled its team of home retention specialists in the past year to 7,400 people, Allen said. About 80,000 Bank of America borrowers have been offered modifications or are in the three-month trial period under Obama’s Home Affordable initiative, he said.

Investor Contributions

Apgar said administration officials are also still drafting the final details of its framework, announced April 28, to simplify the process of closing short sales and deeds-in-lieu. Those provide alternatives to foreclosure that are less expensive to lenders and less damaging to the credit of borrowers, who still lose their home.

He also said HUD officials are having trouble implementing new laws designed to improve participation in the Hope for Homeowners program, which was designed to help as many as 400,000 borrowers refinance into more affordable loans insured by the Federal Housing Administration. Just 50 loans have closed through that program, HUD Secretary Shaun Donovan said last month.

The program provides low-cost federal backing for the refinanced loans in exchange for principal writedowns. It also authorizes HUD to pay second-lien holders to extinguish the loan, which is proving difficult to calculate, Apgar said.

Banks controlling modification decisions as servicers have stood in the way of the Hope for Homeowners program because other types of aid don’t require them to suffer losses on their home-equity loans, said Curtis Glovier, a managing director at Fortress Investment Group, a New York-based asset manager.

“Investors are willing to do our part by making a significant sacrifice in reducing mortgage principal,” Glovier plans to tell the committee today, speaking on behalf of a mortgage-investor group.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: July 16, 2009 12:49 EDT