Has anyone been able to do a modification on a FHA loan? Someone said you can't because it is govenment backed and so banks have no incentive to do them because they will get their money from the insurance.

HUD issues guidance to servicers and they are required to participate in loss mitigation or face treble damages.  The following Mortgagee Letters will give you some idea of recent communications to servicers: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-21ml.doc and http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-27ml.doc

For more information, see: http://www.hud.gov/offices/hsg/sfh/nsc/lmmltrs.cfm