Fed Casts Doubt on Govt Mod Push
The new Federal Reserve paper challenges this conventional wisdom and argues that servicers are not missing sensible opportunities to avoid foreclosure by reducing payments or principal.
The first piece of evidence supporting their claim is that in their sample, among comparable mortgages, loan modifications appear to be equally common among loans held “in portfolio” and loans that are securitized. When banks hold loans in portfolio then property rights reside squarely with the bank and there can be no contracting difficulties. If bondholder suits were really restricting the modification of securitized loans, then there should be fewer modifications of such loans, but the rate of modification is roughly the same.
