Mortgage servicers active in greater Chicagoland are dragging their feet when it comes to approving the kind of loan modifications that would give distressed homeowners relief, a study (PDF) released this morning by Housing Action Illinois (HAI) reveals. Working with 10 different housing counseling agencies across the region, HAI analyzed the results of 516 loan modification applications homeowners submitted to their lenders between December 2009 and this past September. Sixteen percent of the applications were denied outright; 40 percent were still pending as of September. And though 44 percent were approved, the latter finding must be taken with a grain of salt, if not a teaspoon: the report finds that the overwhelming number of the approved loan modifications were only temporary, made through the struggling federal Home Affordable Modification Program (HAMP).

Years after the housing and foreclosure crisis began, it is deeply frustrating to read another report that reveals mortgage loan servicers remain unresponsive to mortgagors, sending those seeking help through endless loops. "[W]hile HAMP program directives require that servicers must acknowledge receipt of the application within 10 business days and respond within 30 calendar days with an approval of a trial modification, a denial of a modification, or a request for more information -- this is simply not occurring," HAI's report states.

The organization makes a series of recommendations to address the low number of permanent loan modifications in the Chicago region, including requiring servicers to improve their communication systems and forcing them to respond in a timely manner to loan mod applications. The federal government, the report says, must deal more effectively with complaints related to servicer compliance with HAMP and hold servicers accountable when they fail to meet their obligations. HAI also calls for Congress to expand (PDF) the Community Reinvestment Reform Act. A better modification process and broader reforms certainly are needed -- an estimated one in three mortgage-holders in Chicagoland are presently underwater on their loans, and minority borrowers are particularly at risk of losing their homes to foreclosure.