Experts Say Modification Volume Is Likely to Rise.(Managing REO)

New York-Despite widespread public support and political pressure for lenders to streamline the process of modifying loans for troubled homeowners, a bevy of challenges has slowed the process of offering widespread, systematic relief.

Moreover, modified loans themselves are showing a high propensity for "redefault."

But some industry sources say pressure is mounting to take down those roadblocks. And despite historically low interest rates, many troubled borrowers have few refinancing options.

Over the next 15 months, Fitch Ratings predicts that 15% of loans backing residential mortgage-backed securities issued between 2005 and 2007 will be modified, up from virtually none today. Fitch's estimate is based on the degree to which banks are already modifying loans that they hold in portfolio, as opposed to those sold to investors via securitization.

The nation's 14 largest banks and thrifts have already modified 187,000 mortgages through the first half of 2008, according to Fitch.

That will bring about pressure for investors to make amendments or exceptions to pooling and servicing agreements that currently limit a servicer's ability to modify large numbers of securitized loans.

"There will be increases in securitized loan modifications if only to ensure that borrowers in a securitized pool are being treated equally to borrowers whose mortgages are held by a bank, as well as to fulfill the servicer's duties to maximize returns to the trust," said Huxley Somerville, group managing director for U.S. RMBS, in a news release.