Mortgage Mods Moving Like Molasses

According to a Treasury report released Wednesday, only 12% of eligible borrowers have started trial loan modifications under the $75 billion mortgage foreclosure prevention plan. Under the program, eligible borrowers who are behind on payments or are at risk of imminent default can get their payments reduced for a trial period. If they stay current for three months, then their loans will ultimately be reworked. Doubts are growing about how many of those trial periods turn into a successful modified mortgage. So far, of the four million borrowers that appear to be eligible, 570,000 trial modifications have been offered and 360,000 are under way since the program was introduced in February. Skeptics of the program believe that only 50% of trial mods will lead to real modifications.

According to the MBA, nearly one in 12 borrowers are at least 90 days past due or in foreclosure. Among the largest servicers, Wells Fargo has begun trial mods for 11% of eligible borrowers, with Bank of America initiating for 7%, JP Morgan for 25% and Citigroup for 23%. In an interview Wednesday, Assistant Treasury Secretary Michael Barr called the program "highly effective" and predicted it will meet its goals. If a program that has been under way for six months and is still only running at 12% capacity is Mr. Barr's definition of "highly effective," well, I'd hate to see how some of our other policies he is in charge of are performing. Still the program is battling against some tough economic forces. In many cases, many borrowers are just better off walking away then struggling to pay off a mortgage they never could afford to begin with.