It is widely acknowledged that the loan modification program has largely been a failure. The statistics to show this failure are usually that a small percentage of borrowers facing foreclosure have received permanent loan modification. A large reason for this failure is that banks allege an owner does not have sufficient income for the modification. However, that assessment is made on the loan value, not the real value. If banks included mortgage resets in loan modification, a much larger percentage would be approved.
It would also cut down on defaults after loan modification. Successful loan modifications without mortgage resets are often very bad, putting large balloon payments at the end of the mortgage. A homeowner will pay for 25 years and never gain equity. These modifications lead back into default and foreclosure.