Loan modification program a bust

Only a very small fraction of homeowners who are eligible for government-backed mortgage modifications have been helped. Figures from the Treasury Department show that only a little over 230,000 modifications have been made.

The agency stated, "This pace of modifications puts the program on track to offer assistance to up to 3 to 4 million homeowners over the next three years, our target on February 18."

The number may sound good, but it probably isn't. Foreclosures remain at record levels and high unemployment is likely to exacerbate that. The fact that such a small number of mortgages have been changed over what is a relatively long period of time is discouraging.

There are a several reasons that the program, called the Making Home Affordable plan, is not doing well. The first among these is that there is some evidence that banks make more money off the fees from foreclosures than they do from modified loans.

The other significant reason may be more intractable. People who own homes with mortgages that are greater than the value of their houses have very few reasons to stay in them. The government program brings down monthly payments but not the balance of the mortgages themselves. Homeowners are still faced with the prospects that they may never have any equity in their residences. These homeowners will have to pay their mortgage holders the difference between the sales price and the balance on their home loans if and when they sell their houses.

Unless and until the government's affordable housing plans actually brings down the total balances of underwater mortgages, the program is not going to have many takers.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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