Abstract
Millions of homeowners are having difficulty paying their mortgage because of the COVID-19 emergency, and those suffering from a sustained income loss will be unable to afford their original monthly payments. Research based on post-Great Recession defaults provide compelling evidence that a mortgage modification that delivers substantial payment reduction is the right tool to keep borrowers in their home and avoid foreclosures. Based on this research, I establish the steps of an “optimized” mortgage modification waterfall that offers substantial payment reduction to the borrower while minimizing the financial impact on the lender. I then compare the optimized waterfall to the GSE, FHA, and VA mortgage modification options and provide specific recommendations that, if implemented, would allow the Federal agencies to offer deeper payment reductions and broaden the availability to modifications to help more homeowners in need while minimizing the cost to lenders.
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