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Abstract
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.
- Copyright © 2012 Amherst® Securities Group, LP. All rights reserved. This document may not be republished, or redistributed, without permission.
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US and Overseas: +1 646-931-9045
UK: 0207 139 1600