Nothing comes cheap these days in Washington. In the latest of a multitude of attempts to improve the Federal loan modification program, the Treasury has announced that up to $10 billion in financial incentives will be paid to lenders in an attempt to encourage their participation (emphasis added):

As part of an ongoing effort to expand relief to struggling homeowners, Treasury released today the Supplemental Directive for its Home Price Decline Protection (HPDP) program, a component of the Home Affordable Modification Program (HAMP).  HPDP provides additional incentive payments for modifications on properties located in areas where home prices have recently declined.  The purpose of the program is to encourage additional lender participation and HAMP modifications in areas with recent price declines by helping to offset any incremental collateral loss on modifications that do not succeed.

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While it certainly isn’t breaking news of any sort, Standard and Poor’s (S&P) prediction yesterday that losses will increase to as high as 40% on some of the country’s riskiest home loans signifies that hosuing isn’t yet out of the woods. S&P, a credit rating and risk evaluation research firm, increased loss expectations for the subprime and Alt-A loans issued from 2005-2007 (which have since been packaged into mortgage-backed securities) signal that lenders, investors, and security holders haven’t seen all the troubles they are going to see:

S&P boosted loss projections for subprime loans made at the peak of the market in 2006 and 2007 to 32 percent and 40 percent from 25 percent and 31 percent, respectively.

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