Mortgage modifications not going well; administration prods banks

I have long said that no mortgage modification program tried so far is likely to work.   The only thing I know of that would be effective is to give bankruptcy courts the right to “cram down” the principle on residential first mortgages, just as they now can with second homes and even yachts.  Unfortunately, the banks beat that change in the law in the Senate, and there is little hope it will be revised.

The Obama administration added incentives to the mortgage modification program after the bankruptcy law change was defeated (details here in our blog post on Debt Help from the Obama Administration ), but the administration now admits that it is not working, says the Wall Street Journal.  They had hoped that 4 million mortgages could be modified, but only 270,000 “modification offers” have been extended to home owners.

So, the administration is “…pressing mortgage-servicing companies to step up their efforts to modify troubled loans.”  A letter to 25 large companies told them to put more resources (staff) into the effort.  As our other blog entries indicate, we are skeptical that these lenders will do anything significant.  They would rather foreclose, even when it costs them more.

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