There’s a big problem with government efforts to keep delinquents in their homes by modifying mortgages: Banks would usually rather foreclose, economists tell the Washington Post. Lenders are only interested in modification for the small group of borrowers who will keep paying only if they get help. For those who’ll eventually default either way, they’d rather foreclose immediately, avoiding a costly delay.
Nor do banks have much incentive to help borrowers they think could, with enough sacrifice, catch up on payments. “There is going to be this narrow slice of borrowers for which modifications is the right answer,” says a Mortgage Bankers Association researcher. But the Obama administration says that the modification program is meeting expectations, with more than 20,000 modifications a week.