Obama's decision to make loan modification a major component of his program to reduce the number of foreclosure homes has caused some controversy as some studies showed that almost 50 percent of borrowers who refinance their loans become delinquent within 6 months upon the modification.

However, despite the controversy, Obama is willing to put a stake on loan modification as a way to stop the spread of foreclosure homes in the country.

Obama's foreclosure prevention plan encourages mortgage servicers to reduce loan interest rates to help struggling homeowners protect their properties from being added to the growing list of foreclosure homes. Interest rates under the program should not be over 31 percent of the homeowner's pre-tax income.

To lessen the loss that mortgage servicers will incur by modifying a homeowner's loan, the government has agreed to subsidize a portion of the reduction. To further ensure that the scheme to streamline foreclosure homes will be successful, the government has offered incentives for mortgage lenders, investors and borrowers to take part in the loan modification scheme.

Industry experts have praised Obama's efforts to make mortgage payments affordable for owners of distressed properties. The scheme is based on the 2008 program proposed by Sheila Bair, chief of Federal Deposit Insurance Corp., designed to reduce foreclosures.

However, industry experts pointed out that the scheme will fail to live up to its goal of helping struggling homeowners avoid foreclosures if loan balances for those who owe mortgages more than the market value of their properties will not be reduced.

Hope Now, a coalition of housing counselors and the mortgage industry, has released data which showed that mortgage servicers are using loan modifications to soften the blow that the foreclosure crisis has dealt on the industry and borrowers.

However, majority of loan modifications offered by mortgage lenders are uncoordinated and on voluntary basis. These loan modifications involve adjusting loan length, principal balance and interest rates. From July 2007 to January 2009, mortgage servicers were able to modify nearly 1.3 million mortgage loans.