A greater emphasis on principal writedowns or limited forgiveness will mark new changes to the government’s much-criticized foreclosure prevention program in coming weeks as realization sets in that interest rate reductions and term extensions are not enough. One plan with some debt forgiveness will establish a new and easier “standard” for short sales, a Treasury official said today. Another new program will significantly reduce or temporarily eliminate mortgage payments for unemployed homeowners.

The two most vocal Republican critics of President Obama’s foreclosure prevention program told U.S. Treasury Secretary Timothy Geithner in a letter that its mortgage modification reports were overstating results, shifting its initially stated goal and applying “spin over substance.” Rep. Darrell Issa, R-California, ranking member of the Oversight and Government Reform Committee, and Rep. Jim Jordan, R-Ohio, ranking member of the Domestic Policy Subcommittee, wrote the letter to Geithner, dated March 16, 2010.

A new consumer protection ‘bureau” with sweeping authority over credit cards, mortgages and other financial products will be housed within the Federal Reserve but retain a degree of autonomy, according a new outline of financial system overhaul unveiled today. The historic reform would also create a separate systemic-risk council with the power to dismantle an institution deemed to pose a threat to the U.S. economy, “but only as a last resort.”

The government’s primary foreclosure rescue program has permanently reduced the mortgage payments of more than 170,000 borrowers through February, the U.S. Treasury reported today. But the percentage of those eligible homeowners who are either in the trial phase or approved for permanent status nudged just one point to 29 percent, compared to 28 percent in January and 25 percent in December.

In their bailout of GMAC, U.S. officials took some key missteps that may have resulted in higher taxpayer costs and an uncertain outlook for the financial services giant, according to the most recent report by the government’s official overseer of bailout expenditures. The government should have pursued other options — including a bankruptcy restructuring — for GMAC, the in-house credit arm of General Motors that has expanded over the years to providing home mortgages, insurance and commercial loan products, said the Congressional Oversight Panel.

Citigroup Chief Executive Vikram Pandit today thanked the U.S. government and American taxpayers for providing a vital $45 billion bailout infusion into the banking institution and reminded them of the 27 percent stake in Citi they still hold. “American taxpayers still hold 27 percent of Citi’s common stock, and we look forward to helping them realize value on that investment,” Pandit said. “Citi owes a large debt of gratitude to American taxpayers.”

In its controversial Christmas Eve announcement, the U.S. Treasury said the following on overhauling the housing finance enterprises of Fannie Mae and Freddie Mac after giving both of them unlimited credit lines for three years. “The Administration is in the process of reviewing issues around longer term reform of the federal government’s role in the housing market.” Treasury also said that President Obama would provide a ‘preliminary report” in his fiscal 2011 budget in February 2010. That report did not happen.

The question of the true success rate of the Obama Administration’s Home Affordable Modification Program is not being answered by the U.S. Treasury in its public reports, some lawmakers allege. And even housing market experts and watchdogs are saying the foreclosure prevention campaign amounts to a futile effort, with default rates as high as 70 percent projected for borrowers with modified mortgages. On Thursday, a report authored by two House Republicans was released that called HAMP a complete failure.

Under growing pressure to improve its much-criticized mortgage relief efforts, the Obama Administration is considering a ban on all foreclosures – unless lenders have screened borrowers for inclusion in the government’s Home Affordable Modification Program, according to media reports. Bloomberg first reported the proposal based on a U.S. Treasury document. The plan “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed.”

The overhaul of the U.S.-“sponsored’ housing finance system – more commonly known as Fannie Mae and Freddie Mac – won’t even be proposed until next year, U.S. Treasury Secretary Timothy Geithner told Congress today. But Geithner said it won’t be necessary to place Fannie and Freddie fully on the federal budget, despite the two corporations being under U.S. “conservatorship,” giving the government a quasi-majority stakeholder position in the publicly-traded entities.