Latest reports on the success (or lack of it) of the Obama administration’s mortgage-relief efforts are likely to cause a headache as parties square up for mid-term elections. This is because 51% the 1.35 million troubled borrowers who enrolled for HAMP dropped-out and went their un-merry way. This result for August compares badly with the 48% cumulative result reported for July.

Critics of the current Administration’s interventionist policies argue that it would have been better to do nothing and let economic forces prevail. How many of those commentators have troubled mortgages themselves, or perhaps have lost their homes, I wonder? Since December 2007 when the economy stalled, approximately 2.5 million American families have lost their homes to foreclosure. Many of these tragedies have followed unemployment. Family disintegration, illness, depression and even suicide have followed on from there. Analysts suggest that a further 3.3 million homes may enter repossession before the American economy turns.

The recession has resulted in a depressed property market that is driving recovery away. As prices fall and jobs evaporate, many homeowners found themselves deeply underwater. Politicians hoped that HAMP would help stem the side – this crudely and blatantly has not happened. What now, when grand hopes to bail out 4 million Americans with mortgage modifications have failed?

At the end of August, records showed that only 450,000 indebted households were making regular payments on permanently modified loans. These fortunate few represent just 34% of those who tried. The mortgage modification program has been a difficult journey. Bank employees were unprepared for the paradigm shift in culture, and were too few to cope with the demand. The Treasury made it suddenly harder to prove income too. Many desperate Americans could not clear the hurdles, and walked away from their fortunes and their homes.

I understand the need to prove income to qualify for a loan. After all, was it not a failure to do this properly that lead to risky mortgages and the chaos that ensued? Obama’s program is the ironic victim of its own rules, because most of its intended beneficiaries cannot qualify under its own terms. Assistant Secretary at the Department of Housing and Urban Development Raphael Bostic is hoping that some of these underwater borrowers may yet receive assistance from their own lenders. “We’re certainly not going to stop fighting to turn things around,” he said.

Many commentators believe that HAMP’s life cycle is ending. It has helped those that it can help, and there are few ways to tweak it further without a radical policy shift. “There really is no federal policy approach that is going to have a significant impact,” Howard Glaser, a consultant from Washington told me yesterday.

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