Lenders blame the low success rate - only about 4 percent of the nearly 760,000 who have signed up - on borrowers who don't return the necessary paperwork to complete the process.
Among big lenders, Bank of America Corp. had the worst results. The nation's largest lender had only completed 98 modifications at the end of November. GMAC Mortgage had done 7,100, the most of any lender in the program launched in March.
The Treasury Department, which released the figures Thursday, said it will step up pressure on the industry to improve. The administration's focus is to "get as many of those eligible homeowners as possible into permanent modifications," said Phyllis Caldwell, chief of Treasury's homeownership preservation office.
When the poor progress was clear last summer, the Treasury Department set a goal of enrolling up 500,000 borrowers by Nov. 1. With the clock ticking, many lenders started giving homeowners verbal approval and a temporary modification.
"They were going to do anything to hit that number," said Marietta Rodriguez, national director of homeownership programs at NeighborWorks America.
Under program, eligible borrowers who are behind or at risk of default can have their mortgage interest rate reduced to as low as 2 percent for five years. They are given temporary modifications, which are supposed to become permanent after borrowers make three payments on time and complete the required paperwork, including proof of income and a financial hardship letter.
Without the needed documents, however, borrowers are ejected from the program.
Mike Brauneis, director of regulatory risk consulting at consulting firm Protiviti Inc. predicts that only 20 percent of borrowers who were verbally approved for modifications will ultimately sign up.
"Either people qualify verbally and never send their paperwork in, or they send it in and the numbers are different," he said.
Some borrowers lied about their incomes when they originally took out their loans, and still aren't able to show proof. During the housing boom, the lending industry didn't require borrowers to prove their income, and those loans are highly concentrated in the states hardest-hit by the housing bust.
More than half of loans made in California and Nevada from 2004 to 2007, for example, required little or no documentation, according to research firm First American CoreLogic. Nationally about 4.3 million of those loans were made during the boom years.
"You definitely have a group that shouldn't be in the loan in the first place" said Terry Moore, managing director of consulting firm Accenture's North America banking practice.
But a watchdog report this week said the government effort "appears capable of preventing only a fraction of foreclosures" and said that only $2.3 million out of a potential $75 billion government commitment had been spent.