Why Are Lenders Not Offering Loan Modifications?

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This article documents the fact that lenders have performed payment-reducing modifications on JUST 3% OF SERIOUSLY DELINQUENT LOANS since the foreclosure crisis began in 2007. The authors, Manuel Adelino, Kristopher Gerardi, and Paul S. Willen, show that lenders' reluctance to offer substantial modifications DOES NOT RESULT FROM SECURITIZATION: servicers renegotiate similarly small fractions of loans that they hold in their portfolios. Rather, REDEFAULT RISK [the possibility that a borrower will still default despite costly renegotiation] and SELF-CURE RISK [the possibility that a seriously delinquent borrower will become current without renegotiation] appear to be the factors that make renegotiation unattractive to investors.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Joel Farkas | Attorney Advertising

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