Of all the possible reasons why the government's loan modification program has been a dud, at least one has received scant attention: When borrowers are denied a loan mod and call a hotline to have their case reviewed, they are handed off to a nonprofit group created by a large mortgage servicer and largely funded by the industry.

The nonprofit Homeownership Preservation Foundation got its start as an in-house arm of the mortgage lender Residential Capital LLC, a unit of Ally Financial Inc., the former GMAC Inc. The foundation's board is dominated by GMAC and other finance officials; its chairman is the former CEO of GMAC's ResCap unit.

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