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The prickly problem, though as Dugan has pointed out is that the available data from the OCC and OTS are rife with flaws. For instance, nowhere do servicers report what, exactly, they're doing when they modify a loan. And that, as it turns out, is an incredibly important detail since other data show that in many cases what they're doing is increasing a struggling borrower's monthly payment. The Maryland Office of Financial Regulation, which collects data on some 380,000 loans from 65 servicers, found that of modifications completed last August and September, 42% kept the monthly payment the same and 18% actually raised it. An analysis of 3.5 million sub-prime and Alt-A loans by Valparaiso University's Alan White found that 68% of modified loans tacked on unpaid interest and fees, adding an average $10,800 to the balance due. A lender that caps the existing interest rate on an otherwise adjustable mortgage or reamortizes missed payments over the life of the loan might legitimately view its efforts as giving ground to a struggling borrower but that doesn't mean those efforts provide the borrower with a fair chance of being able to make his new mortgage.
That's why on Feb. 2, a group of 15 state attorneys general and banking regulators sent a letter to the OCC and OTS complaining that its data was muddying the public debate and begging for details about the modifications it tracks. "People are concerned about the effectiveness of loan modifications, which is very troubling to us," says Iowa attorney general Tom Miller, who has been dealing with servicers as head of the 17-month-old State Foreclosure Prevention Working Group. "If they're bad modifications and people default at a higher rate, it's not surprising. But that shouldn't be used to cast doubt on all modifications."
Unfortunately, there is precious little data on what sorts of changes to mortgages do have the best shot of keeping borrowers in their homes in the long run. The most quoted research on the topic, from the investment bank Credit Suisse, shows unsurprisingly that when modifications involve lower monthly payments, borrowers have much more of a fighting chance. One report, looking at modifications made to a pool of sub-prime loans, found that 44% of loans with increased monthly payments were more than 60 days delinquent within eight months. After that same period, only 15% of loans that had received an interest-rate reduction and 23% in which the principal balance had been reduced were more than 60 days late. But oftentimes these more aggressive changes are not being made. White's study found that only 10% of modifications involved principal write-down, and almost all of those cases came from just two services.