Unemployment and loan modifications don't mix.

Turns out it is kind of hard to modify loans when there is no income. Those pesky NPV tests keep coming back that it is better to foreclose than modify. From the Wall Street Journal (emphasis added):

Rising unemployment is complicating the Obama administration's effort to reduce foreclosures and stabilize the housing market.

The first wave of mortgage delinquencies was sparked by borrowers who took out subprime mortgages and other risky loans that became unaffordable, causing them to fall behind on their monthly payments. But the current wave is increasingly driven by unemployment or underemployment, economists and housing counselors say.

The Obama foreclosure-prevention plan was "built around the subprime crisis model, not the unemployment crisis model," said Michael van Zalingen, director of homeownership services for the nonprofit Neighborhood Housing Services of Chicago.

But many borrowers don't have sufficient income to qualify for a loan modification under the plan. Mr. van Zalingen said roughly 45% of the more than 900 borrowers who sought help at two recent counseling events would fall into that category even if their interest rate were dropped to 2% and their loan term were extended to 40 years.

Many of those unqualified borrowers suffered job losses or a reduction in income, Mr. van Zalingen said. Roughly 27% of borrowers who called the mortgage industry's national "Hope Hotline" in the second quarter of 2009 cited unemployment as the primary or secondary reason for their mortgage problems, up from 9.7% in the second quarter of 2008.

The article goes on to talk about various suggested remedies to the issue. Investors in mortgages are increasingly looking like unsecured creditors. There isn't much point of a asset backed security if you can't ever get your hands on the asset when the other party isn't performing. At what point do the investors get a say?