The Obama administration and all the agencies at its disposal are working around the clock to save troubled loans but it is simply not good or fast enough.

In the third quarter there was a 6.2% rise of all seriously delinquent (i.e. 60 days or more past due) and 3.2% increase of all loans in the process of foreclosure.

What is even scarier is that even prime mortgages, those loans with the best interest rates and conditions also rose heavily.

However banks and loan servicers do seem to have stepped on the gas a little and supported the government’s efforts through the HAMP program, or Home Affordable Modification Program. Out of every 6 troubled homeowner one received a permanent or trial loan modification. Unfortunately the homeowners that get a trial but don’t get a permanent modification make up most of that figure. The bad news is that even those who do get a permanent loan modification (31,000 out of 750,000 in the last count) half tend to re-default with 6 months. The good news is that that loan mods done in the second quarter show a lower initial re-default rate. This could be because lenders are making more generous loan modification and reducing monthly payments more aggressively to make payments more likely.

So how are mortgages performing? Badly seems to be the sad consensus. 87 percent of all US home loans are listed as performing, which obviously means 13% aren’t. Government backed mortgages are not faring much better, in some cases worse. Only 83% of the Veterans Benefits Administration loans are “performing”. Fannie and Freddie mortgages (with government backing) are not celebrating with 8% of their mortgages “not performing.

It is not all bad news. The housing market with low interest rates and a large portfolio of “cheap” homes is attracting buyers. This large inventory is likely to stay with us for a while as banks continue to try to unload their distressed properties and troubled homeowners continue to agree to “short sales”.

According to First American CoreLogic one in four home loans is still “under water” or has a mortgage that is worth more than its current value.

What is the government doing to fight this situation?

Two main strategies: 1) Keep the housing market stable by keeping the interest rates low.

2) Loan Modifications.

The first strategy does seem to be helping by encouraging buyers to invest in a new home. Loan modifications are not meeting with the expectations but the latest figures do show that re-defaulting has dropped with the latest more generous mods.

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