Foreclosure modifications aren’t helping as their proponents advocated, and in fact may be making things worse:

The number of delinquent homeowners on track for help dropped from January to May, and 20 percent of those whose mortgage terms were renegotiated this year have now fallen behind once again, according to a report based on data from 13 of the nation’s 20 largest servicers of subprime mortgages.

The State Foreclosure Prevention Working Group, composed of 11 states’ banking regulators and attorneys general, concluded that loan servicers have not developed long-term, sustainable tactics to stave off foreclosures. New York and the Conference of State Bank Supervisors are members.

"Servicers appear to have reached the ‘low hanging fruit’ of subprime loans facing interest rate resets, while not developing effective approaches to address the bulk of subprime loans which are in default before interest rate resets," the report said. "The mortgage industry’s failure to develop systematic approaches to prevent foreclosures has only spurred declines in property values and further increased expected losses on mortgage loan portfolios … We fear continued reactive approaches will lead to another wave of … preventable foreclosures."

As long as home prices are declining, it is likely that loan modifications will be insufficient.  Some folks simply should not have been put into a mortgage for various reasons, and they will continue to have problems. Additionally, with a cooling economy, rising unemployment is going to create problems for some homeowners, regardless of modification.

Ultimately it is up to banks to mitigate their losses, and many of these mortgages can’t be saved.  It is unlikely that the State Foreclosure Prevention Working Group will be able to live up to their name.

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