The Obama administration's struggles to stem the U.S. foreclosure crisis illustrate how high levels of household debt slow recoveries from deep recessions, according to a report from the International Monetary Fund.
The global lending organization cited the failures of administration's signature foreclosure-prevention program in the report released Tuesday on household debt.
The IMF noted that fewer than 1 million mortgages in the United States have been modified under the Home Affordable Modification Program, or HAMP. That's far short of the administration's initial goal of helping 3 million to 4 million struggling homeowners.
Nearly 8 million Americans have faced foreclosure since the housing bubble burst in late 2006.
The report notes that HAMP had limited incentives for lenders and tight eligibility criteria for borrowers. It also says the program has not reduced monthly mortgage payments enough to restore affordability in many cases -- only 11 percent of permanent modifications included principal reductions.
The IMF noted that the administration moved to improve its other assistance programs in February by broadening the number of people who were eligible and increasing incentives for lenders to offer reductions.
But the IMF cautioned that millions of U.S. households still remain at risk of losing their homes and the government's efforts still fall far short of a program implemented during the Great Depression.
"About 2.5 million properties are in foreclosure and another 1.5 million households are delinquent. These are staggering numbers," Daniel Leigh, the main author of the IMF report, told reporters at a briefing. "The need to do something is still there."
A key reason for the low rate of principal write-downs is that Fannie Mae and Freddie Mac, which own roughly half of U.S. mortgages, have not reduced principal for borrowers at risk of foreclosure.
Edward DeMarco, the federal regulator for Fannie Mae and Freddie Mac, has opposed offering principal reductions, despite pressure from lawmakers.
On Tuesday, DeMarco, the acting director of the Federal Housing Finance Agency, softened his stance against mortgage write-downs slightly. He said his agency would consider the idea.
Leigh said a greater response by the government would provide a boost to U.S. economic growth and help halt the steep decline in home prices.
The IMF's assessment of the U.S. mortgage foreclosure effort was included in a report in which the agency assessed the impact of household debt on the global economy.
The global lending organization concluded that recessions tend to be more severe and prolonged if they were preceded by large increases in household debt, which is what happened ahead of the Great Recession.