Lawmakers and a government watchdog on Thursday strongly criticized the Obama administration's loan assistance effort, saying officials rushed the program's creation last year and set up hundreds of thousands of homeowners for failure.

The program, widely viewed as a disappointment, is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years.

"It has failed," said Rep. Jackie Speier, D-Calif., at hearing of the House oversight committee. "It has failed miserably and unfortunately we are incapable of saying: OK, this was an experiment, it didn't work, let's try something else."

The program was launched more than a year ago, and there were problems from the start.

Getting banks and homeowners to complete the process has been tough, and to date only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.

Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.

Neil Barofsky, the special inspector general for the federal financial bailout fund, told lawmakers that the Treasury Department took a "ready, fire, aim kind of approach" when creating the program last year.

That lack of planning, he said, has resulted in "constant changes" that have bewildered the participating mortgage companies.

Another mistake, Barofsky said, was the Treasury's decision last year to allow borrowers to enter the program without providing written proof of their incomes. That move led to a huge backlog of homeowners who are waiting to see whether they qualify — and may wind up falling out of the program after spending months waiting.

"It may have actually harmed the people this program was intended to help," Barofsky said, by putting homeowners into "hopeless modifications with little chances to succeed."

After having problems getting borrowers and banks to complete the process, the Treasury Department reversed course earlier this year and said homeowners seeking relief would be required to provide proof of their incomes upfront.

In another change, Treasury officials said Wednesday they would enact protections to ensure homeowners are treated consistently under the program after consumer advocates complained that some mortgage companies proceeded with foreclosure while borrowers were being evaluated for help.

The companies now must not foreclose until homeowners are found ineligible or don't respond to outreach efforts. Borrowers will be able to get a decision on their application within 30 days. Many homeowners have seen their applications take months to be reviewed.

Herbert Allison, an assistant Treasury secretary, conceded that, when the program was launched last year, "we did not fully envision the challenges that we would encounter."

He told lawmakers that 500,000 homeowners are still waiting to hear whether their applications are approved or denied. Those borrowers, he said, should find out by the end of May. "Frankly they've had to wait too long," Allison said.

But he defended the effort and said the administration is working on several efforts to improve the process for borrowers and the program as a whole.

Meanwhile, one long-delayed piece of the government effort is finally getting off the ground.

Citigroup Inc. on Thursday joined the government's program to modify second mortgages such as home equity loans. With Citi on board, now four big owners of home mortgages in the U.S. have joined.

Lawmakers, however, want the government to go further. They are pressing for more help for borrowers who owe more on their home loans then their house are currently worth.

"We really haven't seen any bold new initiatives coming out of Treasury to address the underlying problem of underwater mortgages," said Rep. Dennis Kucinich, D-Ohio.