The Obama administration is inviting the top 25 mortgage companies to a meeting on July 28, 2009. The subject of the meeting will be loan modification and why the nation’s top mortgage companies are not doing more to modify loans.

A few months back, those mortgage companies have signed onto Obama’s “Making Home Affordable” plan where each of the companies receive an incentive of $1,000 for every mortgage that they modify. However, after 5 months the increasing number of foreclosures is still the main threat to the economy. Back in 2005 the number of foreclosures was 800,000. This year we are going to see 3.5million foreclosures. According to Senator Jack Reed of Rhode Island, the economy will recover when the foreclosures stop.

A month after Obama came to office, his administration had announced the “Making Home Affordable” program to help homeowners keep their home by starting to modify their loans in large numbers. Until July 6th, the number of mortgages that has been modified is only 131,030. Compared to the number of foreclosers this year which is 3.5million, this is so close to nothing.

One of the reasons why mortgage loan modification has been so slow is that apparently mortgage companies are just not equipped enough to handle a sudden wave of phone calls and enquiries by homeowners interested in loan modification. Many of the companies just couldn’t cope with the volume.

The work of preparing a first mortgage and mortgage loan modification is also very different. Loan modification is more like a one-on-one process because each individu has a different financial situation and each loan modification has to be customized to suit the needs of homeowners.

Another darker reason why mortgage loan modification or mortgage relief has been so slow, as stated by the New York Times, is that although loan modification seems more reasonable than foreclosure, not many homeowners or borrowers see it that way. The rate of re-default on modified mortgages can be as high as 50% which means that the homeowner has not prevented foreclosure on his home but rather postponed it. However, in many cases, everytime a borrower falls behind from his mortgage, he will eventual catch up. Because of these cases, lenders prefer to wait on the borrower than to offer loan modification.

Apparently the $1,000 incentive for each modified mortgage from the Obama administration to each lender is not strong enough for lenders to modify loans. Compared to the work they have to put in for each loan modification, the incentive means nothing.

On July 28, 2009 mortgage companies will have to explain all the reasons why loan modification has been so slow.

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