MINNEAPOLIS -- Nine months ago, the Obama administration offered banks $75 billion in taxpayer money to rework troubled mortgages.

Yet so far, $75 billion hasn't been enough to compel many lenders to permanently reduce monthly mortgage payments for millions of cash-strapped homeowners. Indeed, tens of thousands of borrowers who have asked for relief have instead seen their payments and loan balances increase under the Obama plan. A surprisingly high percentage are sliding back into default.

The U.S. Treasury announced Tuesday that 650,994 homeowners nationwide have been put in temporary, three-month trial modifications under President Barack Obama's foreclosure-prevention plan. That represents one in five eligible homeowners at least 60 days behind on their mortgage payments, according to the U.S. Treasury.

"We're reaching borrowers at a larger scale than any other modification program to date," Assistant U.S. Treasury Secretary Michael S. Barr said in a news release Tuesday.

The $75 billion approved for the Obama plan, known as the Home Affordability Modification Program, or HAMP, was never meant to go to borrowers directly. Instead, the money would be used to incentivize lenders to modify mortgages rather than foreclose on properties. Banks would receive a cash handout of up to $4,000 for every loan they modify. For banks, a loan modification may be less costly than a foreclosure, particularly if a house is worth much less than the value of the mortgage.

But despite Obama's financial carrot, the percentage of homeowners who have seen their trial modifications become permanent loan restructurings, with payments reduced for more than just a few months, remains abysmally low. A mere 1,080 borrowers nationwide, or a tiny fraction of those in the Obama plan, had successfully completed their trial period and received permanent loan modifications as of Sept. 30, according to a report last month by the U.S. Government Accountability Office.

And many more who have been approved for relief under the Obama plan have actually seen their loan payments and balances increase - as lenders simply roll back payments, fees and taxes into the remaining life of the loans.

"It's relief of a kind, but a lot of these modifications don't get to the root cause of why the person defaulted in the first place - the mortgage payment was too high," said Mary Bujold, president of Maxfield Research Inc., a Minneapolis-based market research firm.

It's too early to determine if these patterns will continue, but many experts say the Obama plan over-promised and under-delivered by giving lenders too much leeway in how they could modify loans. Others argue that banks have an incentive to keep borrowers in temporary loan modifications for prolonged periods, in order to delay having to foreclose on the house and take a loss.

"I think the Obama administration probably underestimated how difficult it is to solve the mortgage problem," said Rick Sharga, senior vice president of RealtyTrac, a firm that tracks foreclosure.

Mortgage modifications come in many forms. In some cases, lenders can lower interest rates, extend the loan term, or reduce the total amount of the loan by forgoing part of the principal. Of loans modified during the second quarter, 22 percent were either left unchanged or saw their payments increased, according to a recent report by banking regulators.

Yet, government data show that success rates on loan modifications are highest when payments are actually reduced. Indeed, only 34.1 percent of modifications that decreased monthly payments by 20 percent or more were seriously delinquent, compared with 63.4 percent of modifications that left payments unchanged, according to a recent report by the Office of the Comptroller of the Currency, a federal bank regulator.

"A lot of these modifications set people up to fail, rather than to succeed," said Thomas Bloomquist, a supervisor of financial counseling at Lutheran Social Service in Minnesota.

Even so, the Obama program, which got off to a weak start this spring, is gaining momentum, and many housing counselors and lending experts say it's had a meaningful impact on the national foreclosure rate. Celia Chen, a housing economist at Moody's Economy.com, expects at least another 3 million loan modifications next year.

Wells Fargo, the nation's largest home lender, has begun 93,652 trial modifications, or 29 percent of its eligible mortgages, under the Obama program so far this year, according to the U.S. Treasury data released Tuesday. After initially being criticized for its slow pace of modifications, the San Francisco-based bank now has among the highest modification rates among large banks in the nation.

U.S. Bancorp has modified 15 percent of eligible mortgages, though the Minneapolis-based bank did not enter in the program until July 31.

"Many of these people who are in trial modifications will be able to convert to full modifications, and that will mean fewer foreclosures," Chen said. "It's still a benefit."

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