Alternative Loan Modification Programs for Distressed and Non-Performing Loans

An overarching theme from the panel is that in light of the unprecedented declines in home prices and subsequent changes in borrower behavior, it is important to selectively use principal reduction to reduce losses and lower mod re-default rates—and that it is possible to do so while mitigating moral hazard risk. The extent of principal reduction required depends on the use of auxiliary services, some based on behavioral economics and others designed to protect against future house price decline.