The Obama administration has proposed to release a monthly report from the Treasury Department tracking the volume of mortgage modifications actually arranged by those lenders who received TARP funds. The first report is in stark contrast to the public relations line touted by lenders. Lenders falsely claim to have helped four in every five eligible borrowers. The report revealed that:

· Bank of America modified the loans of only 13% of eligible borrowers; and

· Wells Fargo modified the loans of only 12% of eligible borrowers.

Politicians hope lenders will be shamed into performing more modifications for the same public that paid to bail them out. It has yet to be determined whether this tactic will dent lenders’ frigid façade since modifications are not presently in their best interests.

first tuesday take: Our prediction? There’s no chance of increased modifications. Lenders rarely place much stock in public opinion, let alone the personal emotion of shame. So long as it’s not in the interest of their bottom lines, lenders will remain unmotivated to do much beyond giving lip-service to troubled homeowners in response to politicians’ public demands – all with a wink of the eye. Lenders are not in the business of philanthropy and will never burden themselves with that humanitarian yoke.

Change will only come when bankruptcy judges are given the authority to cram down the principal balance owed by distressed homeowners in a negative equity position. Recent history has shown that lenders will not do this unless forced. Until then, they’ll only modify a minimal amount of mortgages, adding on to the principal balance all charges and amounts accrued, then continue shuffling their feet, public opinion be damned. Remember, the emotion of shame can only be felt by actual human beings…

Re: “Wells Fargo, B of A get bad grades on mortgage changes,” from The Sacramento Bee.