Homeowners at least two-months delinquent on their mortgage may be more apt to strategically default if offered a mortgage modification despite the damage to their credit. A new report sponsored by the National Bureau of Economic Research studied the mortgage modification program Countrywide Financial Corp. started after settling federal deceptive-lending charges in 2008. Researchers found Countrywide's relative delinquency rate rose 13% a month immediately after the modification program was announced. Christopher Mayer, senior vice dean and professor of real estate at the Columbia Business School in New York, led the research of the NBER working paper. Fellow Columbia professors Edward Morrison and Tomasz Piskorski, and graduate student Arpit Gupta are co-authors. They said the design of mortgage modification programs must account for strategic behavior by the homeowner to achieve any level of success. "The borrowers whose estimated default rates increased the most in response to the program were those who appear to have been the least likely to default otherwise, including those with substantial liquidity available through credit cards and relatively low combined loan-to-value ratios," the economists wrote in the paper. "Additionally, bounded rationality or moral considerations may decrease a borrower's ability or willingness to behave strategically." More than 5 million homeowners lost their homes to foreclosure over the past three years. The Columbia economists estimate another 11 million borrowers — about 25% of all homes with a mortgage — face possible foreclosure because they're under water, or owe more than the home is worth. Regulators have implored mortgage lenders and servicers to modify home loans through lower interest rates and principal reductions. But programs, such as the Home Affordable Modification Program, haven't fared well in stemming foreclosures or defaults. The Columbia economists found extending benefits to mortgagors two months in arrears "could induce homeowners to default in order to obtain modifications benefits even though they would not have defaulted otherwise." The economists advise lenders vet homeowners on the verge of losing their home more thoroughly before beginning a modification program. Still, a more stringent audit of the property and the owner is time-consuming and "may fail to extend benefits to homeowners before they enter foreclosure or decide to exit their homes, and could thereby lead to higher costs for borrowers and lenders." Earlier Monday, the Treasury Department released a free calculator online that gives borrowers an estimate on whether they qualify for HAMP. And last week, JPMorgan Chase (JPM) analysts said the trend of borrowers choosing to default on their mortgage when they otherwise might have been able to afford payments is on the decline. Write to Jason Philyaw.