President Barack Obama’s limited-aid program to keep struggling Americans in their homes hasn’t gone far enough to help out those owing more on their houses than they are worth, which is hurting the economy and his chances at re-election, experts say.

More aggressive moves to bail out banks and the auto industry helped those sectors out, yet the housing sector continues to dampen recovery thanks to policies that have helped those who are underwater but making payments on their houses refinance, and not those who are seriously struggling to stay in their homes, Democratic allies of the president admit.

“They were not aggressive in taking the steps that could have been taken,” said Rep. Zoe Lofgren, chairwoman of the California Democratic caucus, according to The New York Times.

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“And as a consequence they did not interrupt the catastrophic spiral downward in our economy.”

Obama has said the government should help only “responsible borrowers,” The Times reported, adding his administration offered aid to fewer than half of those facing foreclosure, excluding landlords, owners of big-ticket homes and those judged to have excessive debts.

Furthermore, the White House relied on mortgage companies to modify unaffordable loans rather than have the government take control by purchasing the loans, the approach supported by then-Sen. Hillary Clinton, D-N.Y., and Sen. John McCain, R-Ariz., during the 2008 campaign season.

Administration officials have returned to the drawing board to find ways to assist more struggling homeowners, though more families appear to be headed to foreclosure.

The number of homes that received an initial notice of default — the first step in the foreclosure process — rose by 6 percent on year in July, according to foreclosure listing firm RealtyTrac Inc., The Associated Press reported.

The president, meanwhile, has suffered policy setbacks when it comes to housing on other fronts.

The Federal Housing Finance Agency, the regulator overseeing Fannie Mae and Freddie Mac, blocked a proposal by the Obama administration to let the two mortgage companies forgive principal on home loans, the argument being that relieving stressed homeowners of housing debt would encourage others to halt payments.

“The anticipated benefits do not outweigh the costs and risks,” said the Federal Housing Finance Agency’s head Edward DeMarco, according to Reuters.

The decision drew swift rebuke from the Obama administration.

“I do not believe it is the best decision for the country,” Treasury Secretary Timothy Geithner told DeMarco in a letter released to the media, Reuters added.

The use of targeted principal reduction would “provide much needed help to a significant number of troubled homeowners, help repair the nation’s housing market and result in a net benefit to taxpayers,” Geithner added.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.