Why Isn’t the Gov’t Mortgage Program Working?

Those readers who've followed our coverage of the administration's mortgage modification program know that progress has been slow. The administration originally set a benchmark of 4 million modifications, but only 200,000 people have received modifications so far.

Earlier this month, administration officials sent a letter to mortgage servicers telling them to step up their efforts (more staff, more training) and summoning them to Washington for a meeting. That meeting will take place today, giving rise to a few articles (AP, WaPo, WSJ) seeking to explain the slow pace of modifications.

The pieces essentially offer two different explanations -- though given that relatively little data has been made available, they're more like theories. First, the servicers have lacked capacity. They've been overwhelmed by phone calls and, as we reported earlier this month and the Journal emphasizes this morning, a number of major servicers were intentionally dealing with only the most delinquent borrowers first, leaving other homeowners waiting. So perhaps the program isn't doomed, just off to a slow start? Treasury officials tell the Post that the program has finally hit their goal of 20,000 modifications a week.

But the second theory is less encouraging, and that is servicers aren't modifying loans because it doesn't make business sense to do so. The Post highlights a study by Federal Reserve economists making that argument. Meanwhile, a Bank of America spokesperson told the Journal that many people seem to think they're eligible for aid when they're not: "Given widespread public mis-expectations, a significant percentage of borrowers seeking Home Affordable modifications under the imminent-default provisions will not qualify."

We'll continue to follow the program's performance and report on what we find.

Other bailout links this morning:
Small Banks at Center of Overhaul Debate (WaPo)
From under TARP, Banks Add Lobbying (Politico)
Revamp Could Hurt Central Bank, Warns Head of Philadelphia Fed (WSJ)
Politicians Accused of Meddling in Bank Rules (NYT)
AIG Unit Keeps $2.4 Billion From Sales as U.S. Waits (Bloomberg)

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