PT - JOURNAL ARTICLE AU - Laurie S. Goodman AU - Lidan Yang AU - Roger Ashworth AU - Brian Landy TI - Modification Effectiveness: <em>The Private-Label Experience</em> <br/> <em>and Its Public Policy Implications</em> AID - 10.3905/jfi.2012.22.3.021 DP - 2012 Dec 31 TA - The Journal of Fixed Income PG - 21--36 VI - 22 IP - 3 4099 - https://pm-research.com/content/22/3/21.short 4100 - https://pm-research.com/content/22/3/21.full 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