Treasury’s Loan Mod Progress Report: Read the Fine Print

As we noted this morning, leading mortgage servicers participating in the government's loan modification program have been inconsistent in their efforts to modify loans for troubled homeowners. The Treasury Department released data (PDF) highlighting the discrepancies among servicers, but the picture of the program's progress overall may be bleaker than the numbers show at first glance. (See our visualization of the numbers here.)

The Treasury Department reported the number of trial modifications each servicer has offered and started; to put those numbers in context, it compared them to the number of loans eligible for the program — but only counted loans that are at least 60 days delinquent. The actual pool of eligible loans is larger.

The Making Home Affordable program covers any homeowner who has already defaulted or will likely default "imminently," including those who haven't missed a payment yet.

The discrepancy is not small. In the first quarter of this year, when 8.8 percent of mortgages were at least 60 days delinquent, an additional 3.25 percent of mortgages were between 30 and 60 days delinquent, according to the Mortgage Bankers Association National Delinquency Survey. Including current loans on the brink of delinquency would expand the pool of eligible borrowers even further.

The report says that the total number of trial modifications started under the program represents 9 percent of the eligible 60-day delinquent loans—but the actual percentage of all eligible borrowers who have been helped is even lower.

Progress toward the administration’s stated goal of helping 3 to 4 million homeowners by Dec. 31, 2012, is somewhere between 5.9 percent and 7.8 percent.

Using the 60-day-delinquency mark provides a "fair and reasonable estimation of performance of the program," said Michael Barr, the Treasury Department's assistant secretary for financial institutions, in a conference call with reporters this morning. He stressed that loans do not have to be at that stage of delinquency to be eligible for the program, but that it was a useful baseline for evaluating the program’s progress and comparing servicers.

In total, 235,247 homeowners have started trial modifications (the program requires a three-month trial period before the modifications are finalized and the servicers get paid). The administration has set a goal of boosting that number to 500,000 by Nov. 1. Barr said the administration expects that servicers will improve their performance over time — and that they’ll need to do so to reach that target. “The proof is going to be in the pudding” in November, he said.

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