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Article

Modification Effectiveness: The Private-Label Experience
and Its Public Policy Implications

Laurie S. Goodman, Lidan Yang, Roger Ashworth and Brian Landy
The Journal of Fixed Income Winter 2013, 22 (3) 21-36; DOI: https://doi.org/10.3905/jfi.2012.22.3.021
Laurie S. Goodman
is a senior managing director at Amherst Securities Group, LP in New York, NY.
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  • For correspondence: lgoodman@amherst.com
Lidan Yang
is a senior vice president at Amherst Securities Group, LP in New York, NY.
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  • For correspondence: lyang@amherst.com
Roger Ashworth
is a mortgage-backed securities analyst at Amherst Securities Group, LP in New York, NY.
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  • For correspondence: rashworth@amherst.com
Brian Landy
is a senior vice president at Amherst Securities Group, LP in New York, NY.
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  • For correspondence: blandy@amherst.com
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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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The Journal of Fixed Income: 22 (3)
The Journal of Fixed Income
Vol. 22, Issue 3
Winter 2013
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Modification Effectiveness: The Private-Label Experience
and Its Public Policy Implications
Laurie S. Goodman, Lidan Yang, Roger Ashworth, Brian Landy
The Journal of Fixed Income Dec 2012, 22 (3) 21-36; DOI: 10.3905/jfi.2012.22.3.021

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Modification Effectiveness: The Private-Label Experience
and Its Public Policy Implications
Laurie S. Goodman, Lidan Yang, Roger Ashworth, Brian Landy
The Journal of Fixed Income Dec 2012, 22 (3) 21-36; DOI: 10.3905/jfi.2012.22.3.021
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  • Article
    • Abstract
    • MODIFICATION SUCCESS HAS BEEN IMPROVING
    • DRIVERS OF MODIFICATION SUCCESS
    • INTERACTIONS BETWEEN DRIVERS OF MODIFICATION SUCCESS
    • USE OF PRINCIPAL REDUCTIONS WILL CONTINUE TO RISE
    • PRINCIPAL REDUCTION AND GSEs
    • THE MORAL HAZARD/STRATEGIC DEFAULT ISSUE
    • DATA TRANSPARENCY ISSUES FOR INVESTORS
    • HOUSING MARKET IMPACT
    • Footnotes
    • REFERENCES
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  • PDF (Subscribers Only)

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