Under the federal foreclosure prevention plan, borrowers granted a trial modification pay no more than 31% of their income towards their mortgage payment. If the borrower makes three timely payments on his trial modification, he becomes eligible for permanent modification. During the trial period, loan servicers verify the borrowers’ financial status and determine whether to grant a permanent modification.  Now that half a million borrowers across America have been paying on their trial loan modifications for some months, what are their chances of receiving a full, permanent modification?

The bridge from trial to permanent modification is just as fraught with bureaucratic pitfalls as the process of obtaining the original trial modification. Loan servicers complain that borrowers are failing to submit the required documentation during the trial period needed to qualify the borrower for a permanent modification. Borrowers are equally accusatory, blaming loan services of losing their paperwork and moving at glacial speeds. Not surprisingly, these are the exact same complaints that were levied by both parties during the first steps of the trial modification process.

It has still yet to be seen how many borrowers will actually be able to upgrade their trial modifications to permanent status. Even if they ultimately do, it’s clear that they have a long, bumpy road ahead to get the deal done.

first tuesday take: And even if a borrower’s trial modification is converted to a permanent modification, just how helpful will be it? Most modifications simply extend the loan term or reduce the interest rate, leaving the principal balance – the real albatross around the borrower’s neck – snugly intact. As has historically been the case, most (65%) of these superficial “extend-and-pretend” modifications, trial and permanent, end with the borrower defaulting again and slipping back into troubled waters. Thus, even a “permanent” modification will likely prove temporary and ineffectual for most negative equity borrowers.

A reduction of the principal balance, a cramdown, equips the borrower with a durable loan-to-value ratio and provides the borrower an honest shot at sustained solvency, not the quick fix offered by the lesser forms of modification which actually increase negative equity.

Re: “Long-term Obama loan modifications prove elusive,” from CNNMoney.