Who receives a mortgage modification? Race and income differentials in loan workouts

J. Michael Collins and Carolina Reid

No 2010-07, Community Development Working Paper from Federal Reserve Bank of San Francisco

Abstract: Loan modifications offer one strategy to prevent mortgage foreclosures by lowering interest rates, extending loan terms and/or reducing principal balance owed. Yet we know very little about who receives loan modifications and/or the terms of the modification. This paper uses data from a sample of subprime loans made in 2005 to examine the incidence of loan modifications among borrowers in California, Oregon and Washington. The results suggest although loan modifications remain a rarely used option among the servicers in these data, there is no evidence that minority borrowers are less likely to receive a modification or less aggressive modification than white borrowers. Most modifications involve reductions in the loan?s interest rate, and an increase in principal balance. We also find that modifications reduce the likelihood of subsequent default, particularly for minority borrowers.

Keywords: Mortgage; loans (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ure
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