According to The New York Times, in March the number of homeowners who had their mortgages modified under the government's home loan modification program and then defaulted on their loans nearly doubled. The total number of "cancellations," as the U.S. Treasury Department calls loans that were terminated early, was 2,879 in March, up from 1,499 in February and 1,005 in January. Of those 2,879 cancellations, only 37 of the early terminations were due to the loans being paid off.

The Treasury Department hopes the loan modification program will eventually help more than half of the 7 million households currently behind on their mortgage payments. "It's definitely alarming to look at those statistics," Julia R. Gordon of the Center for Responsible Lending in Washington told The New York Times. "The current model for modifications doesn't necessarily produce sustainable results."

Opinions differ on how important these numbers are. The Treasury Department responded by saying the total number of loan modifications is increasing, up 35 percent in March (from February) to 227,922. Shaun Donovan, the Housing and Urban Development (HUD) Secretary, agrees. "One percent of these loans defaulting is a tiny fraction. Given how stressed these borrowers are, even in the best situation, there will be redefaults, but I don't think there is any evidence that would cause us to worry at this point."

Part of the problem for many borrowers is that even with a lower interest rate, they are still in debt. Out of every $100 a distressed homeowner earns, $61 goes toward paying down debt. At some point, even the best intentions meet hard financial reality.

Some have pointed out one aspect of the loan modification program that could be slowing the process: It's voluntary. While there are incentives for lenders to participate (both by chopping principal and by lowering interest rates), many lenders may be hesitant to join because of the impact on their bottom line and the idea that better incentives may be offered down the line.

One solution that has been proposed in a paper from Wenli Li of the Federal Reserve Bank of Philadelphia is to roll back bankruptcy provisions from before the 2005 bankruptcy reform law. In this paper, it is suggested that the 2005 reform, which raised the costs associated with filing for bankruptcy, as well as limiting the amount of debt that could be eliminated, has led to 200,000 more mortgage defaults per year than before the reform. Rolling back the law will not solve the problem alone, but for many underwater borrowers, bankruptcy could be an option to help wipe out debt while keeping their homes.

If you are facing the loss of your home, contact an experienced attorney to learn more about mortgage modification, bankruptcy, and other possible debt-relief options.