But only 12% — about 116,000 — have received permanent modifications after a three-month trial period. Some economists say that's too few to make a meaningful impact when millions of homeowners are in foreclosure or delinquent on their mortgages.
The success of the government program also may be tempered by homeowners who become delinquent even after getting permanent modifications with lower monthly payments.
"The modifications reduce monthly payments, but I think redefaults will be in the 20% to 30% rate," says Mark Zandi, chief economist at Moody's Economy.com. "There is no principal write-down. (Borrowers) will take the reduced payments, but if there is an interruption in income, they'll redefault, because they're underwater."
Homeowners are considered underwater if they owe more on their homes than they are worth. An estimated 10.7 million Americans— or 25% of homeowners — have negative equity in their homes, according to First American CoreLogic.
Under the government's program, CitiMortgage and GMAC were the best performers in getting homeowners whose mortgages they service into modifications: Half of eligible homeowners were in either a trial or permanent modification at the end of January. Eligible homeowners are 60 or more days delinquent on their home loans.
GMAC also converted a third of the trial modifications it started into permanent ones, which was one of the best conversion records among the large mortgage servicers whose performances are tracked in Treasury's monthly report.
In contrast, servicers handling much larger mortgage portfolios were less successful in producing permanent modifications. JPMorgan Chase Bank's rate was 7%, and Bank of America's rate was 5%.
The modifications lower monthly payments for homeowners through reduced interest rates, extended loan repayment schedules and delaying payment of principal. Mortgage payments for those in permanent modifications have been cut by a median of about $522 a month, according to Treasury.
The goal of the federal program is to offer up to 4 million homeowners lower payments through mortgage modifications through 2012.
Starting June 1, the government will try to speed up the conversion rate by requiring homeowners to provide all necessary documents, such as proof of income, when they apply for trial modifications. Homeowners have to stay current on their modified mortgage for about three months to qualify for a permanent adjustment. Some servicers haven't requested all documents until homeowners complete the trial period, which has delayed moving them into permanent modifications.
Bernard Baumohl, of the Economic Outlook Group, says that despite the government program's problems, it has helped homeowners.
The program "was really never meant to solve the housing crisis but to slow down the foreclosure crisis."
