A new study finds that an alarming number of homeowners — 800,000 — would not have faced foreclosure had the banks taken full advantage of the government's Home Affordable Modification Program to assist distressed mortgage-holders following the financial meltdown. The study, conducted by a group of scholars and government officials and coming to us via ProPublica, found that while some banks were well-staffed and trained to modify mortgages, most were not. The program gives eligible home owners a way to alter the terms of their mortgage — lower interest rates, longer repayment periods, or even the principal — so that they can lower their monthly payments. It was targeted at the sub-prime mortgages where often payments increased radically after a "teaser" period with a low interest rate. When the mortgage market collapsed, homeowners could not refinance, and the borrowers faced monthly payments they could not afford, leading the banks to foreclose. The theory behind HAMP was that it would be better for the financial system if those people paid their debts more slowly rather than not at all. But in the end, HAMP is on pace to result in the modification of just 1.2 million home loans by the end of this year, well short of the 3 to 4 million modification goal set by President Obama. ProPublica's Paul Kiel writes of the new study:

What they found was that certain banks were far better at modifying loans than others. The reasons for the difference, they established, were pretty predictable: The banks that were better at helping homeowners avoid foreclosure had staff who were both more numerous and better trained.

Unfortunately for homeowners, most mortgages are handled by banks that haven't been properly staffed and thus have modified far fewer loans. If these worse-performing banks had simply modified loans at the same pace as their better performing peers, then HAMP would have produced about 800,000 more modifications. Instead of about 1.2 million modifications by the end of this year, HAMP would have resulted in about 2 million.

Now, of course, 2 million wouldn't have met Obama's goal either. But Kiel argues that the failure of HAMP to prevent foreclosures after home values plummeted is part of the reason that "in the sixth year of the foreclosure crisis, the country remains saddled with an extraordinarily high number of loans in foreclosure — about 2 million. That backlog hasn't improved much in the last couple years, meaning it's still hard to forecast when the foreclosure rate will return to a normal level."

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Esther Zuckerman