Mortgage Modifications Wind Down As Foreclosures Heat Up

By: Diana Olick - CNBC Real Estate Reporter

Mortgage modifications under the government's bailout program, permanent and trials, and as well as proprietary modifications made by the big banks continue to fall and are falling at an increasing clip.

You might think it's because there are fewer troubled loans, and there are, but there are still plenty there.

It appears the drop is because so many borrowers don't qualify and because banks are instead pushing these loans to foreclosure or short sale.

And then there is the re-default rate on the modifications already completed.

Around 17 percent of permanent modifications failed under the government's program, but repeat foreclosures made up nearly 45 percent of October foreclosure starts, according to Lender Processing Services. There are still 1.8 million loans that are 90+ days overdue but not in foreclosure, according to LPS and 665,800 that are 60+ days. So there are still plenty of loans out there to be modified, even if that's down from a peak of 3 million 90+ delinquent in January of 2010.

With the delinquencies in the millions, the modifications only in the tens of thousands, and re-default rates running high, we know that the vast majority of troubled loans will go to foreclosure.