WASHINGTON - Government officials and other observers agree that the U.S. housing market cannot recover until the foreclosure crisis is solved and a regulatory system is put in place that ensures no repeat of the lending debacle that caused it.

Yet the remarks of Obama administration officials and consumer advocates at a conference of real estate writers and editors here suggest that the very depth of the crisis means a resolution is far from close in coming.

The president's initiative to keep people in their homes through mortgage refinancing and modification has hit some early snags, administration officials said in conference sessions Thursday.

Since details were announced March 4, 16 mortgage servicers have signed up to participate in the voluntary program, representing what officials variously described as 76 percent to 81 percent of the total mortgage market.

Deputy Treasury Secretary Seth Wheeler said: "The program is not working up to its potential yet" because those servicers still are not prepared for their gigantic task.

"They have been adding and doubling their staffs and training them and retooling their systems to handle the volume of modifications that they'll need to handle," he said. "The key to everything is implementation, implementation, implementation."

So far, 150,000 trial modifications have been offered to borrowers, and tens of thousands more are being worked on, Wheeler said. The program's target is nine million troubled mortgages either refinanced or modified in the next several months.

Are the mortgages that are being modified changing in a way that keeps people in their homes?

In at least one instance, the answer was no, said David Berenbaum, vice president of the National Community Reinvestment Coalition. The homeowners initially were saddled with a $125,000 balloon payment in return for the change in terms.

"They took their case to us, and we went back to the servicer," Berenbaum said. "The servicer honestly didn't know this had happened, and after further investigation found that the mortgage broker had been responsible for this."

Ultimately, the balloon payment was canceled, he said, though the mortgage broker denied responsibility for it.

Despite regulatory changes made as the subprime crisis erupted in the summer of 2007, unscrupulous mortgage brokers continue to put people in homes they cannot afford, using mortgages they should not have qualified for, Berenbaum said.

Of the couple who sought his group's help with the balloon payment, he noted: "These people earned $75,000 a year. Yet they were qualified for a mortgage for a $500,000 new house."

He chastised the media for advertising mortgage-modification services that charge borrowers an average of $2,900, while HUD-approved counseling agencies and others do it for free.

"For $2,900, these borrowers are given all the wrong information," Berenbaum said. "Instead of immediately contacting their lenders, they are told not to, to let these modification people do it for them. These people also have made attempts to steal title to . . . properties without [the owners'] knowing it."

The Office of the Comptroller of the Currency, which raised a red flag about the low success rate of modifications last year, says it believes that the process is working better, but only, Chief of Staff John Walsh said, because the agency is obtaining the right kinds of tracking data.

"When we report again at the end of June, it will show that the succession of changes . . . has made the mortgage-modification process more sustainable" than the 52 percent failure rate reported in the fall, Walsh said.

But he warned that unemployment nationwide was "only beginning to take its toll now."

Ken Wade, chief executive officer of NeighborhoodWorks America, a network of community-development and affordable-housing organizations, said the current program had a better chance of working than such initiatives as the multibillion-dollar Hope for Homeowners program, which had modified only 51 mortgages when it was absorbed into the Obama administration's plan.

"The failure was not in the effort, but . . . that by the time these older programs were in place, the nature of the problem had changed," Wade said. "The new programs anticipate the changes in the market and have a better chance of working."

Federal Housing Finance Agency director James Lockhart, charged with oversight of Fannie Mae and Freddie Mac since their near-collapse last fall, said they needed "a well-defined and consistent mission that doesn't require excessive risk."

"The affordable-housing goals set by HUD were, in retrospect, too high and caused both of them to do things they shouldn't have done, such as Fannie's getting involved in the subprime market, where it should never have gone," Lockhart said.

"You've got to be clear about what must be in private sector and what is in the public one. If the federal government bears the risk of mortgages, they should be paid by the private sector to do it."

Instead, Fannie and Freddie so leveraged themselves that they "created a systemic risk much bigger than what Lehman [Bros. Holdings Inc.] went through."

The right answer is not necessarily to nationalize the market, Lockhart said. "We should keep Fannie and Freddie in some fashion, perhaps operating like a public utility, with a regulator controlling price and risk."

The critical job is to help stabilize the housing market and the economy, he said.

"We have to get restructuring right. It is crucial that we don't go through what we've gone through in the last two years again."

Contact real estate writer Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.