Top state officials from across the country warned policymakers in Washington this week that efforts by the federal government and private lenders to stem the housing crisis are falling short. They say the industry could face a “devastating” new wave of foreclosures unless changes are made to existing mortgage relief programs.

According to a report released this week by the State Foreclosure Prevention Group, which is made up of state banking regulators and attorneys general, six out of 10 seriously delinquent borrowers are not even involved in loss mitigation efforts. The few that are pursuing foreclosure prevention actions, “face a process that is seriously backlogged,” the report said.

The State Foreclosure Prevention Group says these signs point to even more foreclosures in 2010 than the record-high set in 2009.

“We certainly have not turned the corner on the foreclosure problem, despite major and commendable federal and state efforts,” said Iowa Attorney General Tom Miller, a leader of the State Foreclosure Prevention Working Group. “We’ve said it before, and we are saying it now: Servicers must do even more to slow the tide of unnecessary foreclosures.”

The total number of struggling homeowners not engaged in any type foreclosure prevention assistance continues to grow. According to state officials, the administration’s Home Affordable Modification Program (HAMP) has helped slow down the foreclosure crisis, but current efforts have been insufficient to get ahead of the problem.

On top of that, HAMP procedures have created a loss mitigation log jam, the report said, with the average time to complete a loan modification for a number of servicers taking as long as six months.

The State Foreclosure Prevention Group has put forth a laundry list of recommendations to improve the process. Straightaway, the state officials say servicers should suspend foreclosure proceedings on any loan involved in loss mitigation process. “In some cases, homeowners have lost their homes while being told they are being considered for a loan modification. This is unacceptable,” the report said.

Perhaps the most divisive proposal put forth by the group is that HAMP should make principal reductions a priority in areas where home prices have plummeted. The report says most modifications result in payment reductions, but principal reductions remain rare. “Given the correlation between negative equity and likelihood of default, the failure to write down principal in connection with loan modifications is a glaring flaw in current efforts,” state officials wrote.

The Wall Street Journal reported that despite pressure from the State Foreclosure Prevention Group, the Obama administration said Wednesday it had no immediate plans to alter HAMP by more aggressively pushing principal write-downs.

State officials say servicers should also pay particular attention to reforming payment-option adjustable-rate mortgages (ARMs). If unaddressed, the payment shock on these loans, coupled with the high proportion that are significantly underwater, will push an overwhelming number of these loans into foreclosure, the group said.

In addition, the report argues that the HAMP program must increase transparency and reduce paperwork in order to reach its potential. “While the Treasury Department has made positive steps in reducing paperwork burdens, we believe more streamlining is necessary to reduce burdens on both servicers and homeowners,” the State Foreclosure Prevention Group wrote.

The officials said their own states should consider expanding homeowner counseling programs or implementing temporary foreclosure mediation programs. Given the numbers of homeowners likely to face foreclosure in the next 12-24 months, many will fall through the cracks of even the best-implemented system for working out mortgage loans, the report said.

The group also urged the Treasury and servicers to provide better help options for unemployed homeowners. Unemployment and loss of income are key catalysts to a mortgage default, and the group says even with unemployment insurance benefits, out-of-work homeowners face significant hurdles in keeping their homes.