Do mortgage modifications even work?

For months we've been hearing that the sticking point in modifying mortgage loan terms is that servicers didn't want to get sued by the multiple owners of a mortgage due to securitization. But according to an article in The Economist, there's very little difference in the rate of loan mods whether they were securitized or not. Moreover, most lenders still prefer to foreclose, in large part because borrowers in arrears have more incentive to catch up on the loan without a modification. From the article:

A new study* by a trio of Federal Reserve economists finds that very few delinquent mortgages are modified overall, and that securitised loans are as likely to be renegotiated as those on lenders’ books.

The economists looked at a sample of mortgages in a huge data set that covers 60% of America’s residential-mortgage market. Less than 3% of seriously delinquent borrowers got a mortgage modification that reduced their monthly payments in the year after they got into trouble. Less than 8% of them got any kind of modification at all. Differences between securitised mortgages and others were scant. Lenders of all stripes clearly prefer to foreclose on delinquent borrowers. Repossession proceedings were begun in half the cases and completed in one-third of them...