Some government programs turn out to be moderately successful. Others turn out to be a disappointment. A few turn out to be disastrous failures. Then there's the Obama administration's mortgage modification program, which hasn't done well enough to qualify for even the worst of those categories. Data (.pdf) released yesterday shows that it's had an incredibly pathetic 1% success rate thus far.

Here's the chart that tells the story:

Nov 2009 mort mods treas rpt.PNG


So out of over 3 million requests sent to borrowers, only 31,382 modifications have been made permanent. That's a failure of epic proportions. Imagine if you got a 1% score on a test when you were in school. How embarrassing. No wonder the link to this report is "accidentally" broken on the financial stability website. (I found it by guessing what they'd correctly name the file and typing it into the browser.)

Active trial modifications are faring a little better at 22%. Of course, that's still an F--- grade. And remember: these numbers don't include re-defaults, which are almost certain to occur, even after some of these trials go permanent.

Another trend that the Obama administration must find troubling is the steady decline in modifications being offered to troubled homeowners. For the past few months, the number has been declining:

Nov 2009 mort mods treas rpt - 2.PNG


I reported yesterday that foreclosures declined by 8% in November, so it might make sense that trials offered have declined. By they've declined by a whopping 30% from October to November.

The blame for why this program has gone so badly has been spread across multiple parties. Maybe banks and servicers are purposely taking measures to prevent modifications from succeeding. Maybe the borrowers just can't afford modifications, so they don't stick. Or maybe the government's requirements were too strict to modify most underwater mortgages. It's hard to believe that any one factor could result in such a serious failure, so it's probably a combination of factors.

Interestingly, the House today is considering a provision to allow bankruptcy judges to "cram down" mortgage balances to help underwater homeowners. They passed a similar provision a while back, but it died in the Senate. This time it would be attached as an amendment to the large financial regulation bill, also being considered today.

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