The Obama administration’s housing rescue plan is a step in the right direction, but the plan certainly isn’t without its downfalls, said a congressional oversight panel in a report released Friday. The $275 billion plan, announced on February 18, aims to prevent unnecessary foreclosures through obtaining affordable payments for struggling homeowners. It’s a plan that the administration estimates could help between four and five million homeowners who would otherwise find themselves in foreclosure. While these projections are encouraging, there are “additional areas of concern that are not addressed in the original announcement of the plan,” wrote the oversight panel in its report. “In particular, the Plan does not include a safe harbor for servicers operating under pooling and servicing agreements to address the potential litigation risk that may be an impediment to voluntary modifications,” the report said. However, the U.S. House of Representatives approved Thursday a bill that contains a provision that would legally give mortgage service firms “safe harbor” if they try to revise distressed loans. The Senate is expected to consider its own version of the bill soon, but the chance of passage is uncertain, according to a Reuters report. The plan also falls short in fully addressing the contributory role of second mortgages in the foreclosure process — both as it affects affordability and as it increases the amount of negative equity, the report said. And while the modification aspects of the Plan will be mandatory for banks receiving TARP funds going forward, the panel is concerned with how federal regulators will enforce these new standards industry-wide in order to reach the needed level of participation. The Plan also supports permitting bankruptcy judges to rework underwater mortgages in certain situations. “Such statutory changes would expand the impact of the Plan,” said the report. “Without the bankruptcy piece, however, the Plan does not deal with mortgages that substantially exceed the value of the home,” which the panel warns could limit the relief it provides in parts of the country that have experienced the greatest price declines. “The foreclosure crisis has reached critical proportions,” the oversight panel said. But it hopes by identifying the current impediments to sensible modifications that the nation can move toward “effective mechanisms to halt wealth-destroying foreclosures and put the American family — and the American economy — back on a sound footing.” Write to Kelly Curran at kelly.curran@housingwire.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.