Progress Illinois

Even the Obama administration admits that its Making Home Affordable modification program has gotten off to a rocky start. This morning, the White House released the first official stats of the $75 billion initiative. So far, lenders have offered to modify mortgages for 406,540 delinquent borrowers. But only 235,250 of those home loans have been put into trial modifications by participating loan servicing firms. Among those, only 50,000 were successful, The American Prospect reports. Compare that to the number of people in danger of foreclosure -- 3.5 million, according to the Center for Responsible Lending -- and it becomes clear that the program is woefully underperforming.

Matthew Katz at NPR's Planet Money blog links to a New York Times story that explains one major problem the program faces: Despite subsidies from the government, it often makes more financial sense for banks to collect delinquency fees instead of spending resources to alter loans. More from the Gray Lady:

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

The Woodstock Institute points out some flaws in the Boston Federal Reserve paper underlying this emerging consensus, including the overlooked fact that a majority of the modifications made during the period studied did not lower monthly payments. Instead, servicers actually "increased or held constant the payment amount" on the off-chance that the economy would rebound and homeowners would suddenly be able to pay off their loan. That clearly hasn't happened. But with added government pressure on the banks, Woodstock says loan modifications are still "still the most important tool available to avoid the negative effects of foreclosures on our communities."

This new data also supports Sen. Dick Durbin's claim that alternatives, like right-to-rent or mortgage bankruptcy reform, are needed at the federal level to stop the flood of foreclosures. Even if Making Home Affordable picks up steam, the numbers are just too daunting to stay the course.