The HOPE NOW Alliance of mortgage loan servicers said today they’re on track to modify nearly 1 million mortgages in 2008, and expect to do twice as many or more loan modifications in 2009 to prevent foreclosures.

Federal banking regulators also issued a report showing the number of loan modifications on the rise during the third quarter, but said more than half had redefaulted after six months.

Editor’s note: As government officials continue to deliberate a path forward to curb the surge in foreclosures and restore the vitality of the housing market, Inman News is encouraging readers to share their views and engage in a discussion in drawing up a "Roadmap to Recovery." Click here for details.

The HOPE NOW Alliance of mortgage loan servicers said Monday they’re on track to modify nearly 1 million mortgages in 2008 and expect to do twice as many or more loan modifications in 2009 to prevent foreclosures.

Federal banking regulators also issued a report showing the number of loan modifications on the rise during the third quarter, but said more than half had re-defaulted after six months.

Comptroller of the Currency John C. Dugan said re-default rates continue to rise even six or eight months after loans are modified, a trend he called "very troubling," and which "underscores the need to understand why these modifications have not been more sustainable."

Meanwhile, lawmakers are looking at tying the release of the second $350 billion of the Troubled Asset Relief Program (TARP) to a more aggressive government-backed loan modification program.

Rep. Barney Frank, D-Mass., wants TARP to fund a $24 billion insurance program proposed by FDIC Chairwoman Sheila Bair, Bloomberg reports.

The program calls for the government to absorb up to 50 percent of participating lenders’ losses in the event of a re-default when they agree to modify troubled borrowers’ mortgages to reduce their monthly payment to 31 percent of income. The FDIC assumes that even if one out of three loans ends up re-defaulting, the government could prevent 1.5 million foreclosures (see Inman News story).

Frank also reportedly wants to revamp the FHA’s "Hope for Homeowners" refinance program, which Secretary of Housing and Urban Development Steve Preston in an interview with the Washington Post last week acknowledged has been a failure. But Preston blamed Congress for imposing too many conditions on the program.

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