Borrowers dropped in loan modification program

Almost half the borrowers who went into the federal loan modification program have been dropped for various reasons, with the majority of them working out their mortgage problems outside the government's plan, according to reports released Friday.

From the program's April 2009 inception through July, almost 1.5 million borrowers were eligible, and of the 1.3 million trial loan modifications started, almost 617,000 were terminated, said the Treasury Department and Housing and Urban Development departments.

The latest breakdown of canceled trials, which goes through the end of June, shows 45 percent of borrowers got alternative modifications, largely in-house programs offered by lenders and loan servicers.

But 30 percent of borrowers cut from the federal program were still awaiting some action from the lender or servicer, reports said, and 10 percent went into the foreclosure process.

In most of the remaining cases, borrowers handed lenders the deeds to their homes, sold their houses as "short sales," in which the lender or investor agrees to be shorted of the money owed, or had their homes taken back by lenders.

"They either didn't qualify in the first place or they were not making the payments they're required to make in the trial period or they decided to drop out," said Herb Allison, Treasury's assistant secretary for financial stability. So far, about 435,000 homeowners have received permanent loan modifications, the reports said.

Data show the New York region, which includes Long Island, northern New Jersey and part of Pennsylvania, was second among metro areas in modification activity: 16,678 trials and 24,615 permanent changes.