Some 900,000 U.S. homeowners are enrolled in the government's Home Affordable Modification Program, or HAMP. But as of December, the Treasury Department reports that only 66,000 of them had gotten permanent loan modifications.
The program was announced by President Obama in February 2009 in Arizona. That's where Thad Salter lives, in the town of Maricopa, with his wife and two boys. Sitting at his dining-room table, he sifts through a 3-inch-thick pile of paper — the record of a long process to get a mortgage modification through HAMP.
Salter needed to lower his $2,300 monthly payment because he lost his job as a human resources executive — and with it, 40 percent of his family's income.
It took a year, but his lender, Chase, offered to extend the mortgage from 30 to 40 years and lower the interest rate from 6.8 to 2 percent. That would cut his payment roughly in half, which makes Salter's initial reaction to the offer seem bizarre.
"I call it extortion," Salter said. "Government-backed extortion. I mean, who in their right mind would accept this? No one would. No one should."
The mortgage modification solves a short-term problem: It allows Salter to stay in his home. But it doesn't address a long-term issue. Salter's mortgage is about $300,000. Today, his home is worth $125,000. He's underwater.
To keep the bank from taking a loss, the loan modification includes a $107,000 balloon payment before he can pay off the mortgage. So financially, Salter says he feels like a hostage.
"I'm not gonna gain $200,000 value on this home," Salter said. "That's just not gonna happen. You know, I think it's gonna take a lot longer than that to even break even on this house, if ever."
Salter decided to take the modification and stay in his home for a few years. But he still wonders if it would be better to walk away from his home and give it back to the bank. Many of his neighbors did: 15 of the 22 homes on his block went into foreclosure over the past couple of years.
Until recently, Salter says he never thought of walking away.
"I'm not one of those who believes in that, but I've seen so many other people do that," he said.
Chase would not comment for this story; it referred us to the Financial Services Roundtable, a banking industry association.
Spokesman Scott Talbott points out that walking away from a mortgage would bring down the Salters' credit rating. And, he says, if everyone did it, home values would go down even more. But mainly, Talbott says that homeowners who get modifications have an obligation to stay — and pay.
"The borrowers have signed a contract," he said. "They have signed a promissory note, which says, 'I promise to repay.' So in addition to a legal obligation, you can argue there's a moral obligation to repay."
University of Arizona law professor Brent White disagrees. He says there are good reasons for homeowners to break their contract, and that companies do it all the time when it makes financial sense.
"A contract is not a moral document, it's a legal document," White said. "So all this language about moral obligation and contractual obligations rest upon homeowners not knowing what a contract is."
White's ideas have been criticized by the banking industry, former Treasury Secretary Henry Paulson, and at least one government-sponsored credit counseling agency. He says banks and the government aren't acting out of homeowners' financial interests; instead, they're playing on their emotions.
"And for the bank, the rules of the game are, make as much money as possible," White said. "And use the fact that the homeowner is following moral norms to the bank's advantage."
White is not suggesting that everyone walk away from their mortgage. Emotional attachment or the desire to remain in a neighborhood are good reasons not to.
Salter ultimately decided to accept the modification, but not for financial reasons. He says he didn't want to disrupt his family.
"You know, I could care less about myself," he said. "But the kids I was more concerned about, and my wife."
Salter's struggle emphasizes both the modification program's purpose and weakness. It was set up to keep people in their homes, not bail them out of a mortgage that could be underwater for as long as it lasts.