RT Journal Article
SR Electronic
T1 Modification Effectiveness: The Private-Label Experience
and Its Public Policy Implications
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 21
OP 36
DO 10.3905/jfi.2012.22.3.021
VO 22
IS 3
A1 Laurie S. Goodman
A1 Lidan Yang
A1 Roger Ashworth
A1 Brian Landy
YR 2012
UL https://pm-research.com/content/22/3/21.abstract
AB This article looks at the modification experience of the private-label mortgage market. We quantify the major drivers of modification success: modification type, amount of pay relief, how early in the delinquency process the modification is received, first versus subsequent modifications, and the borrower’s FICO score. We show that early modifications greatly increase success, but the tendency has been for modifications to take place later. We also show that even controlling for pay relief, principal modifications are more effective than other modification types, and we discuss those circumstances in which principal reduction can dramatically improve modification success. Finally, we discuss some of the issues in using principal reduction on government-sponsored enterprise modifications, including the moral hazard issue.TOPICS: Real estate, MBS and residential mortgage loans, legal and regulatory issues for structured finance