(CBS) Jeff and Shari Lee knew they'd have trouble meeting their mortgage payments when his business, installing granite counters, started slowing last year. But 18 months later, they're still waiting for a permanent loan modification.
"It was a joke," Jeff Lee said. "It was a shuffle you just got put from one person to the next. You just couldn't get any answers from anybody."
The process has taken so long, the Lees are now in foreclosure.
"It's a huge failure," said attorney Gene Melchionne.
Melchionne said he has a dozen clients who need mortgage modifications but can't get them.
"The people handling the paperwork don't seem to know one month to the next what they are doing," Melchionne said. "It's just chaos."
The government's $50 billion program to help homeowners can't keep up with the growing crisis, says a new Congressional Oversight Panel report, with foreclosures now outpacing modifications by two to one, reports CBS News correspondent Anthony Mason.
"We're bailing it out, but the boats taking on water faster than we can bail," said Elizabeth Warren, with the Congressional Oversight Panel.
Warren said the government's plan was designed only to attack the subprime problem.
"Now what we have is a crisis that's hit prime mortgages, one that's largely driven by unemployment," Warren said.
At this pace, the Federal Housing Administration, which backs more than 20 percent of all new mortgages, may need a multibillion-dollar bailout.
"I think the problem is going to be very intense over the next six to 12 months, particularly as unemployment continues to increase and housing values remain under pressure," said Mark Zandi, a chief economist and cofounder of Moody's Economy.com. "I think foreclosures are going to be a problem for us well into 2011 and 12."
The oversight panel urged the Treasury to expand its program. It's estimated another 3.5 million homes could go into foreclosure by the end of next year.