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United States Government Accountability Office: 
GAO: 

Report to Congressional Addressees: 

June 2012: 

Foreclosure Mitigation: 

Agencies Could Improve Effectiveness of Federal Efforts with 
Additional Data Collection and Analysis: 

GAO-12-296: 

GAO Highlights: 

Highlights of GAO-12-296, a report to congressional committees. 

Why GAO Did This Study: 

Historically high foreclosure rates remain a major barrier to the 
current economic recovery. To assist policymakers and housing market 
participants in evaluating foreclosure mitigation efforts, GAO 
examined (1) the federal and nonfederal response to the housing 
crisis, (2) the current condition of the U.S. housing market, and (3) 
opportunities to enhance federal efforts. To address these objectives, 
GAO analyzed government and mortgage industry data, including loan-
level data purchased from a private vendor; reviewed academic and 
industry literature; examined federal policies and regulations; and 
interviewed housing industry participants and observers. 

What GAO Found: 

In an effort to help the millions of homeowners struggling to keep 
their homes, a range of federal programs have offered relief in the 
form of loan modifications and refinancing into loans with lower 
interest rates, among other things. Under Treasury’s Home Affordable 
Modification Program (HAMP), initiated in early 2009, servicers have 
modified almost 1 million loans between 2009 and 2011. During the same 
period, servicers modified nearly 1 million additional loans under 
programs administered by the Departments of Agriculture (USDA) and 
Veterans Affairs (VA), Federal Housing Administration (FHA), and 
Fannie Mae and Freddie Mac (the enterprises). Servicers have also 
modified about 2.1 million loans under nonfederal loan modification 
programs resulting in a total of about 4 million modifications between 
2009 and 2011. However, a large number of borrowers have sought 
assistance, but were unable to receive a modification. For example, 
approximately 2.8 million borrowers had their HAMP loan modification 
application denied or their trial loan modification canceled. Further, 
the volume of federal modifications has declined since 2010 (see 
figure below). Recent efforts have expanded refinancing programs. 
However, low participation rates in FHA’s program raise questions 
about the need for Treasury’s financial support, which could reach a 
maximum of $117 million. 

Figure: Total Permanent Loan Modifications through Federal, Fannie 
Mae, and Freddie Mac Programs, January 2009 through December 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

Date: 2009, Q1; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 37,041; 
FHA, VA and USDA modifications (non-HAM): 21,367; 
Treasury HAMP Modifications (enterprise and enterprise): 0. 

Date: 2009, Q2; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 32,315; 
FHA, VA and USDA modifications (non-HAM): 21,888; 
Treasury HAMP Modifications (enterprise and nonenterprise): 0. 

Date: 2009, Q3; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 36,699; 
FHA, VA and USDA modifications (non-HAM): 19,886; 
Treasury HAMP Modifications (enterprise and nonenterprise): 4,742. 

Date: 2009, Q4; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 19,944; 
FHA, VA and USDA modifications (non-HAM): 34,375; 
Treasury HAMP Modifications (enterprise and nonenterprise): 62,196. 

Date: 2010, Q1; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 47,050; 
FHA, VA and USDA modifications (non-HAM): 40,475; 
Treasury HAMP Modifications (enterprise and nonenterprise): 163,863. 

Date: 2010, Q2; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 70,330; 
FHA, VA and USDA modifications (non-HAM): 49,254; 
Treasury HAMP Modifications (enterprise and nonenterprise): 167,220. 

Date: 2010, Q3; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 100,081; 
FHA, VA and USDA modifications (non-HAM): 44,968; 
Treasury HAMP Modifications (enterprise and nonenterprise): 97,877. 

Date: 2010, Q4; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 81,187; 
FHA, VA and USDA modifications (non-HAM): 49,486; 
Treasury HAMP Modifications (enterprise and nonenterprise): 83,752. 

Date: 2011, Q1; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 37,797; 
FHA, VA and USDA modifications (non-HAM): 44,968; 
Treasury HAMP Modifications (enterprise and nonenterprise): 90,536. 

Date: 2011, Q2; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 33,586; 
FHA, VA and USDA modifications (non-HAM): 41,649; 
Treasury HAMP Modifications (enterprise and nonenterprise): 92,885. 

Date: 2011, Q3; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 47,075; 
FHA, VA and USDA modifications (non-HAM): 32,741; 
Treasury HAMP Modifications (enterprise and nonenterprise): 93,903. 

Date: 2011, Q4; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 35,633; 
FHA, VA and USDA modifications (non-HAM): 23,715; 
Treasury HAMP Modifications (enterprise and nonenterprise): 76,353. 

Source: GAO analysis of Fannie Mae, Freddie Mac, FHA, Treasury, USDA, 
and VA data. 

[End of figure] 

In spite of these efforts, the number of loans in foreclosure remains 
elevated, and key indicators suggest that the U.S. housing market 
remains weak. GAO’s analysis of mortgage data showed that in June 2011 
(most current data available for GAO’s use and analysis) between 1.9 
and 3 million loans still had characteristics associated with an 
increased likelihood of foreclosure, such as serious delinquency and 
significant negative equity (a loan-to-value ratio of 125 percent or 
greater). These loans were concentrated in certain states, such as 
Nevada and Florida (see figure below). Further, more recent indicators 
such as home prices and home equity remain near their postbubble lows. 
As of December 2011, total household mortgage debt was $3.7 trillion 
greater than households’ equity in their homes—representing a 
significant decline in household wealth nationwide. 

Despite the scope of the problem, most stakeholders GAO interviewed 
said that enhancing current foreclosure mitigation efforts would be 
preferable to new ones. GAO found that agencies could take steps to 
make their programs more effective. Collectively, FHA and the 
enterprises had 1.8 million loans in their portfolios that were 90 
days or more past due as of December 2011. GAO found that most of the 
agencies and enterprises, with the exception of USDA, had stepped up 
their efforts to monitor servicers’ outreach to struggling borrowers. 
However, not all the agencies were conducting analyses to determine 
the effectiveness of their foreclosure mitigation actions. Experiences 
of Treasury and the enterprises and GAO’s econometric analysis 
strongly suggest that such analyses can improve outcomes and cut 
program costs. For example, GAO’s analysis showed that the size of 
payment change, delinquency status, and current loan to value ratio, 
can significantly influence the success of the foreclosure mitigation 
action taken. In contrast, not all federal agencies consider redefault 
rates and long-term costs when deciding which loan modification action 
to take. Nor have they assessed the impact of loan and borrower 
characteristics. In some cases, agencies do not have the data needed 
to conduct these analyses. GAO found some evidence to suggest that 
principal forgiveness could help some homeowners—those with 
significant negative equity—stay in their homes, but federal agencies 
and the enterprises were not using it consistently and some were not 
convinced of its merits. In addition, there are other policy issues to 
consider in how widely this option should be used, such as moral 
hazard. The Federal Housing Finance Agency (FHFA), for instance, has 
not allowed the enterprises to offer principal forgiveness. Treasury 
recently offered to pay incentives to the enterprises to forgive 
principal, and FHFA is re-evaluating its position. Until agencies and 
the enterprises analyze data that will help them choose the most 
effective tools and fully utilize those that have proved effective, 
foreclosure mitigation programs cannot provide the optimal assistance 
to struggling homeowners or help curtail the costs of the foreclosure 
crisis to taxpayers. 

Figure: GAO Analysis of Loans with an Increased Likelihood of 
Foreclosure, June 2011: 

[Refer to PDF for image: illustrated U.S. map] 

National: 3,092,529; 13%. 

Alabama: 10%; 
Alaska: 5%; 
Arizona: 16%; 
Arkansas: 9%; 
California: 14%; 
Colorado: 6%; 
Connecticut: 9%; 
Delaware: 10%; 
District of Columbia: 7%; 
Florida: 29%; 
Georgia: 14%; 
Hawaii: 9%; 
Idaho: 12%; 
Illinois: 15%; 
Indiana: 12%; 
Iowa: 9%; 
Kansas: 9%; 
Kentucky: 10%; 
Louisiana: 11%; 
Maine: 10%; 
Maryland: 12%; 
Massachusetts: 7%; 
Michigan: 22%; 
Minnesota: 7%; 
Mississippi: 14%; 
Missouri: 9%; 
Montana: 5%; 
Nebraska: 5%; 
Nevada: 40%; 
New Hampshire: 7%; 
New Jersey: 12%; 
New Mexico: 10%; 
New York: 9%; 
North Carolina: 9%; 
North Dakota: 4%; 
Ohio: 13%; 
Oklahoma: 11%; 
Oregon: 8%; 
Pennsylvania: 9%; 
Rhode Island: 16%; 
South Carolina: 11%; 
South Dakota: 4%; 
Tennessee: 10%; 
Texas: 9%; 
Utah: 8%; 
Vermont: 7%; 
Virginia: 7%; 
Washington: 9%; 
West Virginia: 11%; 
Wisconsin: 10%; 
Wyoming: 5%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market. 

Note: Loans with an increased likelihood of foreclosure include loans 
60 days or more delinquent plus loans less than 60 days delinquent 
(including current loans) with two or more of the following risk 
characteristics—current loan-to-value (LTV) ratio of 125 percent or 
higher; current LTV ratio of 125 percent or higher and local 
unemployment rate of 10 percent or higher; interest rate 1.5 
percentage points or greater above the market rate; and certain 
origination loan features (credit score of 619 or below or LTV ratio 
of 100 percent or higher). Data used was the most currently available 
to GAO. 

[End of figure] 

What GAO Recommends: 

GAO recommends that: Treasury reevaluate the need for its financial 
support of FHA’s refinance program; USDA increase its efforts to 
monitor servicers’ outreach to struggling borrowers; FHA, VA, and USDA 
collect and analyze information needed to fully assess the 
effectiveness and costs of their foreclosure mitigation efforts; and 
FHFA expeditiously finalize analysis on whether to allow the 
enterprises to offer HAMP principal forgiveness modifications. 
Treasury, FHA, VA and FHFA agreed to consider or concurred with the 
report’s recommendations. USDA provided additional information in its 
comments. In response, we clarified the text and recommendation on 
USDA’s monitoring of servicers’ outreach efforts. 

View [hyperlink, http://www.gao.gov/products/GAO-12-296] or key 
components. For more information, contact Mathew J. Scirè at (202) 512-
8678 or sciremj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Responses to the Foreclosure Crisis Have Focused on Loan Modifications 
and Other Home Retention Options: 

Millions of Loans Face Elevated Risk of Foreclosure and Indicators 
Show Housing Market Remains Weak: 

Enhancing Current Federal Foreclosure Mitigation Efforts Could Improve 
Their Effectiveness: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Foreclosure Mitigation Efforts: 

Appendix III: Description of GAO's Methodology to Identify Loan 
Modifications: 

Appendix IV: Loans with Characteristics Associated with Increased 
Likelihood of Foreclosure: 

Appendix V: Description of GAO's Econometric Analysis of Redefault of 
Modified Loans: 

Appendix VI: Comments from the Department of Treasury: 

Appendix VII: Comments from the Department of Housing and Urban 
Development: 

Appendix VIII: Comments from the Department of Veterans Affairs: 

Appendix IX: Comments from the Federal Housing Finance Agency: 

Appendix X: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Total Permanent Modifications from 2009 through 2011, by 
Efforts at Federal Agencies and the Enterprises: 

Table 2: Screens Used to Identify Loan Modifications: 

Table 3: Relationship between OCC and GAO Modification Status at the 
Loan Level: 

Table 4: Number and Percentage of Prime Loans with Characteristics 
Associated with Increased Likelihood of Foreclosure, June 2009 through 
June 2011: 

Table 5: Number and Percentage of Subprime Loans with Characteristics 
Associated with Increased Likelihood of Foreclosure, June 2009 through 
June 2011: 

Table 6: Percentage of Prime Loans by Performance Status for All Loans 
and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Table 7: Percentage of Subprime Loans by Performance Status for All 
Loans and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Table 8: Percentage of Prime Loans by Investor for All Loans and 
Characteristics Associated with Increased Likelihood of Foreclosure, 
June 2011: 

Table 9: Percentage of Prime Loans by Loan Type for All Loans and 
Characteristics Associated with Increased Likelihood of Foreclosure, 
June 2011: 

Table 10: Percentage of Prime Loans by Loan Product Type for All Loans 
and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Table 11: Percentage of Subprime Loans by Loan Product Type for All 
Loans and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Table 12: Percentage of Prime and Subprime Loans with Characteristics 
Associated with Increased Likelihood of Foreclosure by Number of 
Characteristics per Loan, June 2011: 

Table 13: Percentage of Prime and Subprime Loans Delinquent 60 Days or 
More without and with Additional Characteristics Associated with an 
Increased Likelihood of Foreclosure, by Characteristic, June 2011: 

Table 14: Percentage of Prime and Subprime Loans with Current LTV 125 
Percent or Higher without and with Additional Characteristics 
Associated with an Increased Likelihood of Foreclosure, by 
Characteristic, June 2011: 

Table 15: Percentage of Prime and Subprime Loans with Local Area 
Unemployment of 10 Percent or Greater and Current LTV of 125 Percent 
or Higher without and with Additional Characteristics Associated with 
an Increased Likelihood of Foreclosure, by Characteristic, June 2011: 

Table 16: Percentage of Prime and Subprime Loans with Mortgage 
Interest Rate That Is 1.5 Percentage Points or Higher above Market 
Rate without and with Additional Characteristics Associated with an 
Increased Likelihood of Foreclosure, by Characteristic, June 2011: 

Table 17: Percentage of Prime and Subprime Loans with an Origination 
Credit Score of 619 or below without and with Additional 
Characteristics Associated with an Increased Likelihood of 
Foreclosure, by Characteristic, June 2011: 

Table 18: Percentage of Prime and Subprime Loans with Origination LTV 
of 100 Percent or Higher without and with Additional Characteristics 
Associated with an Increased Likelihood of Foreclosure, by 
Characteristic, June 2011: 

Table 19: List of Variables from CoreLogic and HAMP Databases: 

Table 20: Summary Statistics of Variables Used in Regressions Related 
to Redefault within 6 Months of Modification, Using CoreLogic Data: 

Table 21: Selected Borrower and Loan Characteristics Related to 
Redefault within 12 Months of Modification, using of CoreLogic and 
HAMP Data: 

Table 22: Probability Regression Estimates of Redefaults of Modified 
Loans within 6 Months, Using CoreLogic Data: 

Table 23: Comparison of Estimated Changes in Redefaults of Modified 
Loans within 12 Months: CoreLogic versus HAMP Data Sets: 

Table 24: Probability Regression Estimates of Redefaults of Modified 
Loans within 12 Months: CoreLogic Data: 

Table 25: Probability Regression Estimates of Redefaults of Modified 
Loans within 12 Months: HAMP Data: 

Table 26: Probability Regression Estimates of Redefaults for Decreases 
in Monthly Payments: Loan Modifications in CoreLogic Data: 

Table 27: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Modification Action 
and Size of Payment Reduction: 

Table 28: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Borrowers' Home 
Equity Position and Size of Payment Reduction: 

Table 29: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Unemployment Rate and 
Size of Payment Reduction: 

Table 30: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Loan Performance at 
Modification and Size of Payment Reduction: 

Table 31: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification) for Prime Loans 
(Excluding Government-Guaranteed and Enterprise Loans), by 
Modification Action and Size of Payment Reduction: 

Table 32: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification) for Subprime Loans 
(Excluding Government-Guaranteed and Enterprise Loans), by 
Modification Action and Size of Payment Reduction: 

Table 33: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification) for Enterprise Prime 
Loans, by Modification Action and Size of Payment Reduction: 

Table 34: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification) for Non-Enterprise Prime 
Loans (Excluding Government-Guaranteed Loans), by Modification Action 
and Size of Payment Reduction: 

Table 35: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification) for FHA Loans, by 
Modification Action and Size of Payment Reduction: 

Table 36: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification) for VA Loans, by 
Modification Action and Size of Payment Reduction: 

Figures: 

Figure 1: Prime and Subprime Modifications by Type and Payment 
Reductions Greater Than 20 Percent, January 2007 through June 2011: 

Figure 2: Percentage of Modified Loans That Were at Least 90 Days 
Delinquent or in Foreclosure 6 Months after Modification by Quarter of 
Modification, 2007 through 2010: 

Figure 3: Total Permanent Loan Modifications through Programs at 
Federal Agencies and the Enterprises, January 2009 through December 
2011: 

Figure 4: Number of All Loans and Prime and Subprime Loans Delinquent 
60 Days or More Plus Loans Less Than 60 Days Delinquent with Two or 
More Additional Risk Characteristics, June 2009 through June 2011: 

Figure 5: Percentage of CoreLogic Loans with Delinquency and Those 
with Multiple Characteristics Associated with an Increased Likelihood 
of Foreclosure, June 2011: 

Figure 6: Percentage of Loans in Default 90 Days or More or in 
Foreclosure and Recession Periods, March 1979 through December 2011: 

Figure 7: Home Prices and Recession Periods, January 1976 through June 
2011: 

Figure 8: Value of Home Equity and Aggregate Mortgage Debt and 
Recession Periods, 1945 through 2011: 

Figure 9: Percentage Decrease in Monthly Payments and 6-month 
Redefault Rates of Loans Modified, January 2009 through December 2010: 

Figure 10: Predicted 6-Month Redefault Rates and Distribution of 
Payment Reductions of Loans Modified by Loan Type and Size of Payment 
Reduction, January 2009 through December 2010: 

Figure 11: Volume of Modification Actions and Predicted 6-Month 
Redefault Rates of Loans Modified by Modification Type, January 2009 
through December 2010: 

Figure 12: Redefault Rate by Percentage of Monthly Payment Reduction 
for Loans Modified by Selected LTV Categories, January 2009 through 
December 2010: 

Figure 13: Volume of Modifications with Principal Forgiveness Actions, 
2009 through 2011: 

Figure 14 HAMP Permanent First Lien Loan Modifications Completed by 
Calendar Quarter, 2009 through 201186: 

Figure 15: Fannie Mae-Foreclosure Mitigation Actions Completed by 
Calendar Quarter, 2009 through 201188: 

Figure 16: Freddie Mac Foreclosure Mitigation Actions Completed by 
Calendar Quarter, 2009 through 201190: 

Figure 17: FHA Formal Foreclosure Mitigation Actions Completed by 
Calendar Quarter, 2009 through 201192: 

Figure 18: VA Foreclosure Mitigation Actions Completed by Calendar 
Quarter, 2009 through 201194: 

Figure 19: USDA Foreclosure Mitigation Actions Approved by Calendar 
Quarter, 2009 through 201196: 

Figure 20: Comparison of Modification Volumes of Fixed-Rate Mortgages 
as Described by OCC Data and GAO Algorithms Applied to OCC Data, 2009 
through 2010: 

Figure 21: Volume of Modification Action, Predicted Redefault Rates, 
and Distribution of Payment Reductions (within 6 months of 
modification), by Modification Action and Size of Payment Reduction: 

Figure 22: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Borrowers' Home 
Equity Position and Size of Payment Reduction: 

Figure 23: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Unemployment Rate 6 
months after Modification and Size of Payment Reduction: 

Figure 24: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Loan Performance at 
Modification and Size of Payment Reduction: 

Figure 25: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification), by Loan Type and Size of 
Payment Reduction: 

Abbreviations: 

CBO: Congressional Budget Office: 

CFPB: Consumer Financial Protection Bureau: 

DIL: deed-in-lieu: 

EESA: Emergency Economic Stabilization Act: 

EHLP: Emergency Homeowners' Loan Program: 

Fannie Mae: Federal National Mortgage Association: 

Freddie Mac: Federal Home Loan Mortgage Corporation: 

FDIC: Federal Deposit Insurance Corporation: 

FHA: Federal Housing Administration: 

FHFA: Federal Housing Finance Agency: 

HAFA: Home Affordable Foreclosure Alternatives: 

HAMP: Home Affordable Modification Program: 

HARP: Home Affordable Refinance Program: 

HHF: Hardest Hit Fund: 

HUD: Department of Housing and Urban Development: 

LTV: loan-to-value: 

MBA: Mortgage Bankers Association: 

MBS: mortgage-backed securities: 

MHA: Making Home Affordable: 

NPV: net present value: 

OCC: Office of the Comptroller of the Currency: 

PRA: Principal Reduction Alternative: 

RD-HAMP: Rural Development-Home Affordable Modification Program: 

RMBS: residential mortgage-backed securities: 

TARP: Troubled Asset Relief Program: 

Treasury: Department of the Treasury: 

UP: Home Affordable Unemployment Program: 

USDA: Department of Agriculture: 

VA: Department of Veterans Affairs: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 28, 2012: 

Congressional Addressees: 

Problems in the housing market associated with historically high 
delinquencies and foreclosures remain a key hurdle to recovery from 
the current U.S. economic slowdown. The Emergency Economic 
Stabilization Act of 2008 (EESA) provided the Department of the 
Treasury (Treasury) with $700 billion to use under the Troubled Asset 
Relief Program (TARP) to, among other things, preserve homeownership, 
prevent avoidable foreclosures, and protect home values.[Footnote 1] 
Since EESA's passage, a series of congressional acts and initiatives 
introduced by the administration have expanded federal efforts to 
mitigate foreclosures. The centerpiece of these efforts has been the 
2009 Home Affordable Modification Program (HAMP), which is being 
implemented by Treasury's Office of Homeownership Preservation. 
Foreclosure mitigation programs administered by other federal 
agencies, such as the U.S. Department of Housing and Urban Development 
(HUD) as well as Fannie Mae and Freddie Mac (the enterprises), have 
continued and in many cases have been expanded. In addition, state and 
local governments, nonprofits, and mortgage lenders and servicers have 
initiated programs to mitigate foreclosures. Loan modification 
programs have been a key component of both federal and nonfederal 
mitigation efforts to moderate the foreclosure crisis. Limited 
research is available on the effectiveness of these efforts, however, 
and the probability of loans remaining current after a modification is 
not well understood. Information on the outcome of these efforts is 
central to helping ensure that federal foreclosure mitigation programs 
efficiently and effectively preserve homeownership, prevent avoidable 
foreclosures, and protect home values. 

This report is based upon our continuing analysis and monitoring of 
Treasury's activities in implementing EESA, which provided us with 
broad oversight authorities for actions taken under TARP and required 
that we report at least every 60 days on TARP activities and 
performance.[Footnote 2] To fulfill our statutorily mandated 
responsibilities, we have been monitoring and providing updates on 
TARP programs, including HAMP, and this report expands on that work. 
[Footnote 3] In addition, to assist policymakers and housing market 
participants in evaluating the impact and effectiveness of current 
federal foreclosure mitigation efforts, we examined (1) the federal 
and nonfederal response to the foreclosure crisis, (2) the number of 
loans potentially at risk of foreclosure and the current condition of 
the U.S. housing market, and (3) opportunities to enhance the 
effectiveness of current foreclosure mitigation efforts. 

To examine the response to the foreclosure crisis, we looked at 
programs administered by Treasury; HUD; the U.S. Departments of 
Agriculture (USDA) and Veterans Affairs (VA); and two housing 
government-sponsored enterprises (the enterprises)--the Federal 
National Mortgage Association (Fannie Mae) and the Federal Home Loan 
Mortgage Corporation (Freddie Mac). We identified and reviewed each 
program's purpose as well as the associated statutes, regulations, 
requirements, and guidance. We obtained summary data from Treasury, 
HUD, USDA, VA and the enterprises and reviewed selected reports to 
identify, among other things, costs associated with these efforts. We 
also reviewed reports issued by these agencies, the enterprises, and 
the Federal Housing Finance Agency (FHFA) that describe the volume, 
characteristics, performance, and costs of foreclosure mitigation 
efforts and actions that occurred for the period of January 2009 
through December 2011.[Footnote 4] We did not independently confirm 
the accuracy of the summary data we obtained. However, we took steps 
to ensure that the data we used were sufficiently reliable for our 
purposes, such as interviewing officials familiar with the data and 
corroborating key information. 

To further examine the federal and nonfederal response to the housing 
foreclosure crisis, we analyzed loan-level servicing data we obtained 
from CoreLogic, Inc.[Footnote 5] These data provide wide coverage of 
the entire mortgage market--approximately 65 percent to 70 percent of 
prime loans and about 50 percent of subprime loans, according to 
CoreLogic officials. Due to the proprietary nature of CoreLogic's 
estimates of its market coverage, we could not directly assess the 
reliability of these estimates. However, we have used CoreLogic data 
in prior reports in which we concluded that the data we used were 
sufficiently reliable for our purposes.[Footnote 6] Nevertheless, 
because of limitations in the coverage and completeness of the data, 
our analysis may not be representative of the mortgage market as a 
whole. For this engagement, we reviewed documentation on the process 
CoreLogic used to collect its data. We discussed this process and the 
interpretation of different data fields with CoreLogic 
representatives. In addition, we conducted reasonableness checks on 
data elements to identify any missing, erroneous, or outlying data. We 
concluded that the data we used were sufficiently reliable for our 
purposes. 

We restricted our analysis to first-lien mortgages for the purchase or 
the refinancing of one-to-four family houses located in the 50 states 
and the District of Columbia that were active during the period from 
January 2007 through June 2011.[Footnote 7] Although this data set did 
not contain direct information about the presence of modifications, we 
developed a set of algorithms to infer if a loan had been modified. We 
confirmed the accuracy of our algorithms by using our methodology to 
analyze data provided by the Office of the Comptroller of the Currency 
(OCC) that included known modifications (see appendix III for a more 
detailed discussion of our approach). We conducted analyses on a 15 
percent random sample of the CoreLogic data set to examine the volume, 
characteristics, and performance of loan modifications executed by 
both federal and nonfederal programs. 

To examine the extent to which loans were associated with an increased 
likelihood of foreclosure, we identified key characteristics 
associated with an increased likelihood of foreclosure by reviewing 
our prior work and other studies, and interviewing housing market 
participants and observers. These included housing market trade 
associations, such as the Mortgage Bankers Association (MBA), Center 
for Responsible Lending, National Association of Consumer Advocates, 
Amherst Securities, NeighborWorks America, HOPE NOW, and the National 
Community Reinvestment Coalition. Further, we conducted additional 
analyses on the full CoreLogic data set (not a sample). Again, we took 
steps to ensure that the data we used were sufficiently reliable for 
our purposes, such as conducting reasonableness checks on data 
elements. To examine the current condition of the U.S. housing market, 
we identified and analyzed key national indicators. To identify the 
indicators, we reviewed a wide range of publicly available information 
and interviewed housing market participants and observers. To describe 
the indicators, we reviewed information in several publicly available 
reports. 

To examine opportunities to enhance the effectiveness of current 
foreclosure mitigation efforts, we identified and reviewed the goals 
of federal foreclosure mitigation efforts as well as statutes, 
requirements, and guidance associated with these efforts. To describe 
the costs associated with federal efforts and specific foreclosure 
mitigation actions we obtained summary data from Treasury, HUD, USDA, 
VA and the enterprises. Again, we did not independently confirm the 
accuracy of the summary data we obtained. However, we took steps to 
ensure that the data we used were sufficiently reliable for our 
purposes, such as interviewing officials familiar with the data. We 
also reviewed relevant principles of federal budgeting that resulted 
from federal credit reform. We also obtained viewpoints from a wide 
range of housing market participants and observers. For example, we 
met with officials from Treasury, HUD, FHFA, Fannie Mae, Freddie Mac, 
VA, and USDA to understand their foreclosure mitigation efforts. 
Further, we conducted an econometric analysis of redefault among 
modified loans by analyzing a sample of loan-level data we obtained 
from CoreLogic as well as loan-level data we obtained from Treasury on 
HAMP loans. Again, we took steps to ensure that the data we used were 
sufficiently reliable for our purposes, such as conducting 
reasonableness checks on data elements. Appendix V contains a detailed 
summary of the methodology for this analysis as well as the results. 

We conducted this performance audit from October 2010 through June 
2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on the audit objectives. For 
additional information on our scope and methodology, see appendix I. 

Background: 

Current Housing Situation: 

As we previously reported, factors such as a rapid decline in home 
prices throughout much of the nation, weak regional labor market 
conditions in some states where foreclosure rates were already 
elevated, along with the legacy of eased underwriting standards, wider 
use of certain loan features associated with poorer loan performance, 
and growth in the market for private label residential mortgage-backed 
securities, contributed to the increase in loan defaults and 
foreclosures beginning in late 2006.[Footnote 8] The nation's economy 
was in recession between December 2007 and June 2009. During this 
period, the elevated unemployment rate and declining home prices 
worsened the financial circumstances for many families and, with it, 
their ability to make their mortgage payments. Analysis by federal 
agencies, the Federal Reserve System, and housing market observers 
attribute the continued increase in foreclosures between 2008 and 2011 
to several factors, including, continued depreciation in home values, 
elevated numbers of unemployed nationwide, and weaknesses in the 
servicing industry's response to the large number of delinquent 
borrowers.[Footnote 9] 

The Mortgage Market: 

When individuals purchase residential real property with borrowed 
funds, they usually enter into a contractual agreement in which they 
agree, among other things, to make payments to the originating lender 
for a period of time. To secure their debt, lenders obtain a lien on 
the underlying property as collateral against borrower default. The 
lien holder has the right to seize the property should the borrower 
fail to pay. The residential mortgage market can be divided into 
several loosely defined segments that are determined, in part, by a 
borrower's credit quality. 

* Prime mortgages are made to borrowers with strong credit histories 
and provide the most competitive interest rates and mortgage terms. 

* Near-prime mortgages (also called Alt-A mortgages) generally serve 
borrowers whose credit histories are close to prime, but the loans 
often have one or more high-risk features such as limited 
documentation of income or assets. 

* Subprime mortgages are generally made to borrowers with blemished 
credit and feature higher interest rates and fees than the prime and 
near-prime markets. 

* Government-insured or government-guaranteed mortgages primarily 
serve borrowers who may have difficulty qualifying for prime 
mortgages. These mortgages generally feature interest rates 
competitive with prime loans, but borrowers must purchase mortgage 
insurance or pay guarantee fees. HUD's Federal Housing Administration 
(FHA), VA, and USDA operate the main federal programs that insure or 
guarantee mortgages, which protect lenders against losses in the event 
of default. 

Originating lenders generally sell or assign their mortgages to other 
financial institutions that securitize them rather than hold them in 
their portfolios. The purchasers of these mortgages package them into 
pools and issue securities (known as mortgage-backed securities, or 
MBS). The pooled mortgages serve as collateral, and the securities pay 
interest and principal to their investors, which include other 
financial institutions, pension funds, and other institutional 
investors. The secondary market consists of several types of 
securities. Ginnie Mae securities are backed by government-insured or 
government-guaranteed mortgages (FHA, USDA, and VA). Securities issued 
by the enterprises are backed by mortgages that meet the requirements 
for purchase by Fannie Mae and Freddie Mac.[Footnote 10] Finally, 
private label securities--activity levels for which have dropped 
dramatically since 2007--are backed by mortgages that typically do not 
conform to Fannie Mae or Freddie Mac purchase requirements because 
they are too large or do not meet their underwriting criteria. 
Investment banks bundled most subprime and Alt-A loans into private 
label residential MBS, or RMBS. 

Delinquency, Default, and Foreclosure: 

Common measures of loan performance are delinquency, default, and 
foreclosure rates, which show the percentages of loans that fall into 
each category. A loan becomes delinquent when a borrower does not make 
one or more scheduled monthly payments. Loans in default are generally 
delinquent by 90 or more days--the point at which foreclosure 
proceedings become a strong possibility. 

Foreclosure is a legal process that a mortgage lender initiates 
against a homeowner who has missed a certain number of payments. The 
foreclosure process, which is usually governed by state law and varies 
widely by state, generally falls into one of two categories--judicial 
foreclosure, which proceeds through the courts, or nonjudicial 
foreclosure, which does not require court proceedings. The foreclosure 
process has several possible outcomes but generally means that the 
homeowner loses the property, typically because it is sold to repay 
the outstanding debt or repossessed by the lender. The legal fees, 
foregone interest, property taxes, repayment of former homeowners' 
delinquent obligations, and selling expenses can make foreclosure 
extremely costly to lenders. 

Foreclosures have been associated with a number of adverse effects on 
homeowners, communities, the housing market, and the overall economy. 
Homeowners involved in a foreclosure are often forced to move out and 
may see their credit ratings plummet, making it difficult to purchase 
another home. A large number of foreclosures can have serious 
consequences for neighborhoods. For example, research has shown that 
foreclosures depress the values of nearby properties in the local 
neighborhood. In addition, our past work showed that vacant properties-
-often the aftermath of the foreclosure process--can be broken into 
and vandalized, illegally occupied, or used by people engaging in 
criminal activities, increasing the risk of fires or other public 
safety hazards.[Footnote 11] Creditors, investors and servicers can 
incur a number of costs during the foreclosure process (e.g., 
maintenance and local taxes) and can incur a net financial loss as a 
result of the shortfall between the ultimate sales price and the 
mortgage balance and carrying costs. Large numbers of foreclosures can 
significantly worsen cities' fiscal circumstances, both by reducing 
property tax revenues and by raising costs to local government 
associated with maintaining vacant and abandoned properties. More 
broadly, avoiding preventable foreclosures has been viewed as a key 
component of stabilizing home prices and restoring confidence in 
housing for prospective home buyers and existing homeowners. As noted 
by the Federal Reserve System, house prices have fallen an average of 
about 33 percent from their 2006 peak, resulting in a decline of about 
$7 trillion in household wealth and an associated ratcheting down of 
aggregate consumption. 

Options to Avoid Foreclosure: 

Options to avoid foreclosure include repayment plans, forbearance 
plans, loan modifications, short sales, and deeds-in-lieu of 
foreclosure (DIL). Eligibility for different options often varies by 
the borrower's delinquency status. With repayment plans, forbearance 
plans, and loan modifications, the borrower retains ownership of the 
property. With short sales and deeds-in-lieu, the borrower does not. 

* With a repayment plan, the borrower agrees to pay a certain amount 
in addition to the regularly scheduled mortgage payment for a 
specified number of months as a way to catch up on delinquent payments 
and fees. 

* With a forbearance plan, an investor agrees to reduce or suspend 
payments for a specified period of time, during which a portion of the 
principal balance does not accrue interest. Forbearance may be used in 
response to a serious event, such as illness, that has caused the 
homeowner to miss several loan payments. Usually, the investor will 
require the borrower to make up the difference at a later time, often 
through a repayment plan. 

* The investor may offer a loan modification when the borrower can no 
longer afford the monthly payments on the original mortgage but can 
afford reduced payments. Loan modification involves making temporary 
or permanent changes to the terms of the existing loan agreement, 
either by capitalizing the past due amounts, reducing the interest 
rate, extending the loan term, reducing the total amount of the loan 
through principal forgiveness or forbearance, or a combination of 
these actions.[Footnote 12] 

* In a short sale, the investor agrees to accept proceeds from the 
sale of the home to a third party even though the sale price is less 
than the sum of the principal, accrued interest, and other expenses 
owed. Short sales are often the first nonhome retention workout option 
considered, because the investors do not have to take ownership of the 
property. 

* Under DIL, the mortgage holder opts to accept ownership of the 
property in place of the money owed on the mortgage. The homeowner 
voluntarily gives the investor the keys to the property and executes a 
deed to transfer title to the investor. The investor agrees to release 
the debtor from any liability on the outstanding mortgage balance. 
Mortgage holders generally will not accept a DIL if there are other 
liens on the property, as foreclosure may be necessary in order to 
gain clear title--that is, a title with no other claims on the 
property. A DIL may be combined with a lease agreement in an 
arrangement called a deed-for-lease, which allows the borrower to 
remain in the home as a renter. 

Responses to the Foreclosure Crisis Have Focused on Loan Modifications 
and Other Home Retention Options: 

Federal and nonfederal responses to the foreclosure crisis have been 
varied and have included a range of new efforts and expanded use of 
existing programs. In contrast to the traditional focus of putting 
borrowers into temporary repayment plans or forbearance agreements, 
federal and nonfederal foreclosure mitigation efforts have shifted to 
modifying the terms of existing loans to make the payments more 
affordable.[Footnote 13] With the move toward lowering monthly 
mortgage payments, the collective performance of modified loans has 
improved. The key federal effort has been HAMP, which was initiated in 
early 2009 using TARP and enterprise funds. In addition, the 
enterprises, federal agencies, and servicers have expanded their 
existing modification programs in an effort to reach additional 
borrowers. Although not typically viewed as a foreclosure mitigation 
effort, federal refinancing programs have been introduced and expanded 
to help borrowers unable to refinance due to declines in home values 
take advantage of lower interest rates in order to make their mortgage 
payments more affordable, such as the Home Affordable Refinancing 
Program (HARP). In addition, federal and nonfederal efforts also 
looked to provide temporary relief and expand usage of nonhome 
retention programs that facilitate short sales and deed-in-lieu of 
foreclosure, such as Treasury's Home Affordable Foreclosure 
Alternatives (HAFA) program, to allow borrowers to transition to more 
affordable housing and avoid foreclosure. Finally, recent federal and 
state enforcement actions require the five largest U.S. servicers to 
take actions to assist struggling homeowners. Additional details 
related to specific federal and nonfederal efforts are available in 
appendix II.[Footnote 14] 

Modification Activity Peaked in Early 2010 as More Borrowers Received 
Payment Reductions: 

In total, servicers completed more than 4 million loan modifications 
under various federal and proprietary programs between January 2009 
and December 2011, according to estimates published by HOPE NOW, a 
mortgage industry association.[Footnote 15] After completing 1.2 
million modifications in 2009, the mortgage industry permanently 
modified more loans in 2010, nearly 1.8 million. In 2011, however, the 
volume of modifications subsequently declined to 1 million. 
Modification activity peaked in the second quarter of 2010 before 
declining. In fact, loan modification activity during the second 
quarter of 2010 was more than double the volume of modifications 
completed in the fourth quarter of 2011, nearly 500,000 modifications 
compared to about 242,000. 

Over time, servicers have also begun providing borrowers with larger 
reductions in their monthly mortgage payments by using different types 
of modifications. Using CoreLogic data--CoreLogic provides coverage of 
approximately 65 percent to 70 percent of prime loans and about 50 
percent of subprime loans--we found that in 2007 most modifications of 
prime loans and a substantial number of subprime modifications 
resulted in an increase in monthly mortgage payments, corresponding to 
the time when most modifications involved capitalizing past due 
amounts--that is, adding past due amounts to the remaining mortgage 
balance and reamortizing (see figure 1).[Footnote 16] These added 
amounts (sometimes over the remaining term and sometimes with a term 
extension), left borrowers paying more each month. However, by the 
third quarter of 2008, an increasing proportion of modifications 
involved other actions that lowered payments to make them more 
sustainable in the long term. These actions included reducing interest 
rates, extending loan terms, and reducing principal through principal 
forgiveness or forbearance. Further, beginning in the first quarter of 
2010, more than half of both prime and subprime modifications involved 
payment reductions of 20 percent or more. In addition, in 2010 and the 
first half of 2011 about a quarter of all prime and subprime 
modifications included payment reductions of more than 40 percent, 
compared to 8 percent of prime modifications and 11 percent of 
subprime modifications completed between January 2007 and December 
2009. 

Figure 1: Prime and Subprime Modifications by Type and Payment 
Reductions Greater Than 20 Percent, January 2007 through June 2011: 

[Refer to PDF for image: 2 combined line and vertical bar graphs] 

Prime: 

2007, Q1; 
Payment Reductions greater than 20 Percent: 5%; 
Capitalization with or without Term Extension and no other actions: 
74%; 
All Other Combinations of Modification Actions: 26%. 

2007, Q2; 
Payment Reductions greater than 20 Percent: 3%; 
Capitalization with or without Term Extension and no other actions: 
72%; 
All Other Combinations of Modification Actions: 28%. 

2007, Q3; 
Payment Reductions greater than 20 Percent: 3%; 
Capitalization with or without Term Extension and no other actions: 
68%; 
All Other Combinations of Modification Actions: 32%. 

2007, Q4; 
Payment Reductions greater than 20 Percent: 2%; 
Capitalization with or without Term Extension and no other actions: 
51%; 
All Other Combinations of Modification Actions: 49%. 

2008, Q1; 
Payment Reductions greater than 20 Percent: 4%; 
Capitalization with or without Term Extension and no other actions: 
49%; 
All Other Combinations of Modification Actions: 51%. 

2008, Q2; 
Payment Reductions greater than 20 Percent: 6%; 
Capitalization with or without Term Extension and no other actions: 
60%; 
All Other Combinations of Modification Actions: 40%. 

2008, Q3; 
Payment Reductions greater than 20 Percent: 22%; 
Capitalization with or without Term Extension and no other actions: 
49%; 
All Other Combinations of Modification Actions: 51%. 

2008, Q4; 
Payment Reductions greater than 20 Percent: 26%; 
Capitalization with or without Term Extension and no other actions: 
40%; 
All Other Combinations of Modification Actions: 60%. 

2009, Q1; 
Payment Reductions greater than 20 Percent: 37%; 
Capitalization with or without Term Extension and no other actions: 
30%; 
All Other Combinations of Modification Actions: 70%. 

2009, Q2; 
Payment Reductions greater than 20 Percent: 37%; 
Capitalization with or without Term Extension and no other actions: 
20%; 
All Other Combinations of Modification Actions: 80%. 

2009, Q3; 
Payment Reductions greater than 20 Percent: 36%; 
Capitalization with or without Term Extension and no other actions: 
16%; 
All Other Combinations of Modification Actions: 84%. 

2009, Q4; 
Payment Reductions greater than 20 Percent: 41%; 
Capitalization with or without Term Extension and no other actions: 
13%; 
All Other Combinations of Modification Actions: 87%. 

2010, Q1; 
Payment Reductions greater than 20 Percent: 51%; 
Capitalization with or without Term Extension and no other actions: 
11%; 
All Other Combinations of Modification Actions: 89%. 

2010, Q2; 
Payment Reductions greater than 20 Percent: 54%; 
Capitalization with or without Term Extension and no other actions: 7%; 
All Other Combinations of Modification Actions: 93%. 

2010, Q3; 
Payment Reductions greater than 20 Percent: 53%; 
Capitalization with or without Term Extension and no other actions: 8%; 
All Other Combinations of Modification Actions: 92%. 

2010, Q4; 
Payment Reductions greater than 20 Percent: 56%; 
Capitalization with or without Term Extension and no other actions: 7%; 
All Other Combinations of Modification Actions: 93%. 

2011, Q1; 
Payment Reductions greater than 20 Percent: 51%; 
Capitalization with or without Term Extension and no other actions: 8%; 
All Other Combinations of Modification Actions: 92%. 

2011, Q2; 
Payment Reductions greater than 20 Percent: 49%; 
Capitalization with or without Term Extension and no other actions: 
10%; 
All Other Combinations of Modification Actions: 90%. 

Subprime: 

2007, Q1; 
Payment Reductions greater than 20 Percent: 15%; 
Capitalization with or without Term Extension and no other actions: 
59%; 
All Other Combinations of Modification Actions: 41%. 

2007, Q2; 
Payment Reductions greater than 20 Percent: 8%; 
Capitalization with or without Term Extension and no other actions: 
64%; 
All Other Combinations of Modification Actions: 36%. 

2007, Q3; 
Payment Reductions greater than 20 Percent: 11%; 
Capitalization with or without Term Extension and no other actions: 
73%; 
All Other Combinations of Modification Actions: 27%. 

2007, Q4; 
Payment Reductions greater than 20 Percent: 26%; 
Capitalization with or without Term Extension and no other actions: 
51%; 
All Other Combinations of Modification Actions: 49%. 

2008, Q1; 
Payment Reductions greater than 20 Percent: 41%; 
Capitalization with or without Term Extension and no other actions: 
47%; 
All Other Combinations of Modification Actions: 53%. 

2008, Q2; 
Payment Reductions greater than 20 Percent: 54%; 
Capitalization with or without Term Extension and no other actions: 
30%; 
All Other Combinations of Modification Actions: 70%. 

2008, Q3; 
Payment Reductions greater than 20 Percent: 44%; 
Capitalization with or without Term Extension and no other actions: 
18%; 
All Other Combinations of Modification Actions: 82%. 

2008, Q4; 
Payment Reductions greater than 20 Percent: 49%; 
Capitalization with or without Term Extension and no other actions: 
27%; 
All Other Combinations of Modification Actions: 73%. 

2009, Q1; 
Payment Reductions greater than 20 Percent: 46%; 
Capitalization with or without Term Extension and no other actions: 
15%; 
All Other Combinations of Modification Actions: 85%. 

2009, Q2; 
Payment Reductions greater than 20 Percent: 45%; 
Capitalization with or without Term Extension and no other actions: 
17%; 
All Other Combinations of Modification Actions: 83%. 

2009, Q3; 
Payment Reductions greater than 20 Percent: 41%; 
Capitalization with or without Term Extension and no other actions: 
23%; 
All Other Combinations of Modification Actions: 77%. 

2009, Q4; 
Payment Reductions greater than 20 Percent: 46%; 
Capitalization with or without Term Extension and no other actions: 
28%; 
All Other Combinations of Modification Actions: 72%. 

2010, Q1; 
Payment Reductions greater than 20 Percent: 56%; 
Capitalization with or without Term Extension and no other actions: 
15%; 
All Other Combinations of Modification Actions: 85%. 

2010, Q2; 
Payment Reductions greater than 20 Percent: 54%; 
Capitalization with or without Term Extension and no other actions: 
15%; 
All Other Combinations of Modification Actions: 85%. 

2010, Q3; 
Payment Reductions greater than 20 Percent: 55%; 
Capitalization with or without Term Extension and no other actions: 
13%; 
All Other Combinations of Modification Actions: 87%. 

2010, Q4; 
Payment Reductions greater than 20 Percent: 56%; 
Capitalization with or without Term Extension and no other actions: 9%; 
All Other Combinations of Modification Actions: 91%. 

2011, Q1; 
Payment Reductions greater than 20 Percent: 53%; 
Capitalization with or without Term Extension and no other actions: 
11%; 
All Other Combinations of Modification Actions: 89%. 

2011, Q2; 
Payment Reductions greater than 20 Percent: 51%; 
Capitalization with or without Term Extension and no other actions: 
15%; 
All Other Combinations of Modification Actions: 85%. 

Source: GAO analysis of CoreLogic data. 

Note: Prime loans include conventional loans as well as loans insured 
or guaranteed by government entities, such as FHA and VA. Further, 
prime loans include loans servicers have identified as Alt-A loans. 
The category "All other combinations of modifications actions" 
includes interest rate reductions, term extensions, and balance 
reductions, with or without capitalization. 

[End of figure] 

Since 2008, the performance of modified loans has steadily improved. 
According to our analysis of CoreLogic data, loans modified during 
2010 had much lower rates of redefault (becoming 90 days or more 
delinquent) within 6 months of the modification compared to loans 
modified during 2009 (see figure 2). For prime loans modified in the 
fourth quarter of 2010, 9 percent had redefaulted within 6 months, 
while 10 percent of subprime loans modified at that time redefaulted 
within 6 months. In contrast, 36 percent of prime loans modified in 
the third quarter of 2008 redefaulted within 6 months, and 31 percent 
of subprime loans modified at that time redefaulted within 6 months. 

Figure 2: Percentage of Modified Loans That Were at Least 90 Days 
Delinquent or in Foreclosure 6 Months after Modification by Quarter of 
Modification, 2007 through 2010: 

[Refer to PDF for image: vertical bar graph] 

2007, Q1; 
Prime: 18%; 
Subprime: 17%. 

2007, Q2; 
Prime: 21%; 
Subprime: 20%. 

2007, Q3; 
Prime: 19; 
Subprime: 27%. 

2007, Q4; 
Prime: 15%; 
Subprime: 25%. 

2008, Q1; 
Prime: 18%; 
Subprime: 24%. 

2008, Q2; 
Prime: 28%; 
Subprime: 22%. 

2008, Q3; 
Prime: 36%; 
Subprime: 31%. 

2008, Q4; 
Prime: 31%; 
Subprime: 26%. 

2009, Q1; 
Prime: 29%; 
Subprime: 24%. 

2009, Q2; 
Prime: 26%; 
Subprime: 24%. 

2009, Q3; 
Prime: 24; 
Subprime: 29%. 

2009, Q4; 
Prime: 12%; 
Subprime: 19%. 

2010, Q1; 
Prime: 12%; 
Subprime: 14%. 

2010, Q2; 
Prime: 11%; 
Subprime: 16%. 

2010, Q3; 
Prime: 11%; 
Subprime: 17%. 

2010, Q4; 
Prime: 9%; 
Subprime: 10%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Prime loans include conventional loans as well as loans insured 
or guaranteed by government entities, such as FHA and VA. Further, 
prime loans include loans servicers have identified as Alt-A loans. 

[End of figure] 

As shown in figure 2, 6-month redefault rates for loans modified in 
2007 were generally lower than 6-month redefault rates for loans 
modified in late 2008. These higher redefault rates would have been 
observed in mid-2009, corresponding to the period when various 
economic indicators were showing continued distress. For example, the 
unemployment rate was rising throughout early 2009 before peaking in 
October, while home prices remained well below their peak. These 
factors may have contributed to rising redefaults among loans modified 
in late 2008. 

Loan Modification Initiatives at Federal Agencies and the Enterprises 
Have Reached Nearly 2 Million Borrowers and Have Been Recently 
Expanded: 

According to data maintained by federal agencies and the enterprises, 
more than 1.9 million permanent loan modifications were completed 
between January 2009 and December 2011 through several programs (see 
table 1). Nearly half of these permanent modifications were carried 
out through Treasury's HAMP program, and another one-quarter were 
proprietary modifications through the enterprises. The bulk of the 
other federal loan modifications were FHA standard modifications. 

Table 1: Total Permanent Modifications from 2009 through 2011, by 
Efforts at Federal Agencies and the Enterprises: 

Loan Modification Efforts: Treasury HAMP permanent modifications 
(nonenterprise and enterprise); 
Number of permanent loan modifications: 933,000. 

Loan Modification Efforts: Nonenterprise; 
Number of permanent loan modifications: 452,000. 

Loan Modification Efforts: Enterprise; 
Number of permanent loan modifications: 481,000. 

Loan Modification Efforts: Fannie Mae and Freddie Mac non-HAMP 
permanent modifications; 
Number of permanent loan modifications: 579,000. 

Loan Modification Efforts: FHA standard modifications; 
Number of permanent loan modifications: 371,000. 

Loan Modification Efforts: FHA-HAMP modifications; 
Number of permanent loan modifications: 13,000. 

Loan Modification Efforts: VA standard and VA-HAMP modifications; 
Number of permanent loan modifications: 30,000. 

Loan Modification Efforts: USDA traditional and special loan servicing 
modifications; 
Number of permanent loan modifications: 13,000. 

Loan Modification Efforts: Total; 
Number of permanent loan modifications: 1,939,000. 

Source: GAO analysis of Treasury, Fannie Mae, Freddie Mac, FHA, VA, 
and USDA data. 

[End of table] 

Loan modification activity through federal agencies and the 
enterprises peaked in early 2010 and has subsequently generally 
continued to decline through December 2011 (see figure 3). 

Figure 3: Total Permanent Loan Modifications through Programs at 
Federal Agencies and the Enterprises, January 2009 through December 
2011: 

[Refer to PDF for image: stacked vertical bar graph] 

2009, Q1; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 37,041; 
FHA, VA, and USDA Modifications (non-HAMP): 21,367; 
Treasury HAMP modifications (enterprise and nonenterprise): 0. 

2009, Q2; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 32,315; 
FHA, VA, and USDA Modifications (non-HAMP): 21,888; 
Treasury HAMP modifications (enterprise and nonenterprise): 0. 

2009, Q3; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 36,699; 
FHA, VA, and USDA Modifications (non-HAMP): 19,886; 
Treasury HAMP modifications (enterprise and nonenterprise): 4,742. 

2009, Q4; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 19,944; 
FHA, VA, and USDA Modifications (non-HAMP): 34,375; 
Treasury HAMP modifications (enterprise and nonenterprise): 62,196. 

2010, Q1; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 47,050; 
FHA, VA, and USDA Modifications (non-HAMP): 40,475; 
Treasury HAMP modifications (enterprise and nonenterprise): 163,863. 

2010, Q2; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 70,330; 
FHA, VA, and USDA Modifications (non-HAMP): 49,254; 
Treasury HAMP modifications (enterprise and nonenterprise): 167,220. 

2010, Q3; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 100,081; 
FHA, VA, and USDA Modifications (non-HAMP): 44,968; 
Treasury HAMP modifications (enterprise and nonenterprise): 97,877. 

2010, Q4; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 81,187; 
FHA, VA, and USDA Modifications (non-HAMP): 49,486; 
Treasury HAMP modifications (enterprise and nonenterprise): 83,752. 

2011, Q1; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 37,797; 
FHA, VA, and USDA Modifications (non-HAMP): 44,968; 
Treasury HAMP modifications (enterprise and nonenterprise): 90,536. 

2011, Q2; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 33,586; 
FHA, VA, and USDA Modifications (non-HAMP): 41,649; 
Treasury HAMP modifications (enterprise and nonenterprise): 92,885. 

2011, Q3; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 47,075; 
FHA, VA, and USDA Modifications (non-HAMP): 32,741; 
Treasury HAMP modifications (enterprise and nonenterprise): 93,903. 

2011, Q4; 
Fannie Mae and Freddie Mac modifications (non-HAMP): 35,633; 
FHA, VA, and USDA Modifications (non-HAMP): 23,715; 
Treasury HAMP modifications (enterprise and nonenterprise): 76,353. 

Source: GAO analysis of Fannie Mae, Freddie Mac, FAH, Treasury, USDA 
and VAS data. 

[End of figure] 

Home Affordable Modification Program (HAMP): 

As shown in table 1, HAMP has been the federal government's largest 
program for assisting troubled homeowners.[Footnote 17] While other 
loan modification programs were already in place and remain in use, 
the amount of funding allocated to the program--$29.9 billion in TARP 
funds for HAMP and other programs under the Making Home Affordable 
Program (MHA)--set HAMP apart from other efforts.[Footnote 18] Until 
the end of 2013, HAMP will offer modifications on first-lien mortgages 
to reduce borrowers' monthly mortgage payments to affordable levels 
and help them avoid foreclosure. The HAMP modifications described here 
are for (1) loans that are owned and held in banks' portfolios or in 
private label securitization trusts and serviced by a participating 
servicer, and (2) loans that are owned or guaranteed by Fannie Mae or 
Freddie Mac.[Footnote 19] Generally, HAMP's main features are: 

* cost-sharing arrangement between the investor and Treasury for 
lowering the borrower's monthly mortgage payment;[Footnote 20] 

* standardized net present value (NPV) test that is applied to each 
loan to evaluate whether a modification is financially beneficial to 
the investor;[Footnote 21] 

* required use of a standardized sequence of modification actions 
("waterfall") to arrive at a minimum affordability ratio of 31 percent 
of the borrower's monthly income;[Footnote 22] and: 

* structured set of incentive payments made by Treasury to servicers, 
investors, and borrowers. 

Borrowers must be delinquent or at risk of imminent default in order 
to be eligible for HAMP.[Footnote 23] Servicers participating in HAMP 
are required to evaluate borrowers for HAMP before considering them 
for other modification options. Borrowers who are approved for HAMP 
begin with a trial period that lasts at least 3 months. Upon 
successful completion of the trial period, servicers are required to 
offer borrowers a permanent modification. 

Treasury reported that between its inception in early 2009 and 
December 2011, about 933,000 permanent HAMP modifications had been 
started (see table 1), but almost as many have had their trial or 
permanent modifications canceled. More than half of these--about 
481,000--came through the enterprises' HAMP efforts. About 763,000 
permanent modifications were active as of December 2011. In addition, 
about 79,000 trial (not permanent) modifications were active as of 
December 2011. According to Treasury, the median monthly payment 
reduction for borrowers in an active permanent modification as of 
December 2011 was about $531, or 37 percent of the median monthly 
payment prior to modification. As of December 2011, Treasury had spent 
about $1.8 billion on HAMP incentive payments to servicers, investors, 
and borrowers for first-lien modifications on nonenterprise 
loans.[Footnote 24] Meanwhile, Fannie Mae reported paying about $880 
million in servicer and borrowers incentives, and Freddie Mac paid or 
accrued $685 million in servicer and borrower incentives for HAMP 
modifications since program inception through December 2011. Although 
HAMP has assisted many borrowers, a large number of borrowers have 
been unable to receive a HAMP permanent modification. According to 
Treasury, about 1.9 million borrowers had their HAMP loan modification 
application denied, as of December 2011.[Footnote 25] Further, more 
than 930,000 homeowners have had their trial or permanent loan 
modifications canceled.[Footnote 26] Servicers had canceled 761,961 
trial modifications, and the vast majority of these (717,390) had 
trial start dates prior to June 1, 2010, when Treasury implemented a 
verified income requirement. Since Treasury implemented this 
requirement, 86 percent of trial modifications have converted to 
permanent modifications. 

In October 2010, the Principal Reduction Alternative (PRA) took effect 
as a component of HAMP to help borrowers whose homes were worth 
significantly less than their mortgage balance. Under PRA, Treasury 
provides investors with incentive payments in the form of a percentage 
of each dollar of principal forgiven.[Footnote 27] Borrowers are 
eligible for PRA if they meet the HAMP first-lien modification 
requirements, owe more than 115 percent of their home's value, and the 
financial institution servicing their mortgage is participating in the 
program. Servicers participating in HAMP are required to evaluate 
these borrowers for PRA by running the NPV test using both the 
standard HAMP waterfall as well as an alternative waterfall that 
includes reducing the borrower's unpaid principal balance. However, 
servicers are not required to offer the borrower a HAMP PRA 
modification even when the NPV result with PRA principal reduction is 
both positive and exceeds the NPV result under the standard waterfall. 
As of December 2011, about 5 percent of active permanent HAMP 
modifications (a total of about 40,000 loans) and 19 percent of 
permanent first-lien modifications started that month received 
reductions in their principal balances under PRA.[Footnote 28] 
Treasury had paid $8.8 million in PRA incentives to participating 
servicers as of December 2011. 

Treasury announced a series of changes to its HAMP program in January 
2012 intended to help reach additional borrowers at risk of 
foreclosure. Effective June 1, 2012, these modifications, referred to 
as HAMP Tier 2 modifications, will be made available to borrowers who 
do not meet the eligibility or underwriting requirements under the 
original HAMP guidelines (now referred to as HAMP Tier 1). These HAMP 
Tier 2 modifications will capitalize past due amounts, adjust the 
interest rate to the market rate plus a risk adjustment, and extend 
the loan term to 480 months from the date of the modification. In 
cases where the mark-to-market loan-to-value (LTV) ratio exceeds 115 
percent, the servicer must forbear principal equal to the lesser of 
(a) an amount that would create a post-modification mark-to-market LTV 
ratio of 115 percent using the interest bearing principal balance or 
(b) an amount equal to 30 percent of the gross post-modified unpaid 
principal balance of the mortgage loan (inclusive of capitalized past 
due amounts). If these changes reduce the borrower's monthly principal 
and interest payment by at least 10 percent and result in monthly 
payments that are between 25 percent and 42 percent of the borrower's 
monthly gross income, the modification may be offered.[Footnote 29] 

Fannie Mae and Freddie Mac: 

Both Fannie Mae and Freddie Mac have provided loan modifications 
outside of the HAMP program for mortgages they hold or guarantee. 
Servicers of Fannie Mae and Freddie Mac loans may use enterprise 
programs for borrowers who have been evaluated for HAMP but do not 
qualify or who received a HAMP modification but have redefaulted. Both 
of the enterprises delegated authority to their largest servicers to 
offer modifications according to a standard set of waterfall steps. 
This modification structure was aimed at making monthly payments more 
affordable. According to Fannie Mae and Freddie Mac data, non-HAMP 
modifications resulted in median monthly payment reductions of about 
26 percent ($279) and 11 percent ($132), respectively, in fiscal year 
2011.[Footnote 30] In addition, the enterprises offered incentives of 
$800 per completed modification. Fannie Mae and Freddie Mac modified 
nearly 580,000 loans between January 2009 and December 2011 through 
their non-HAMP programs. 

In April 2011, FHFA directed the enterprises to align their 
requirements for certain servicing practices.[Footnote 31] 
Subsequently, Fannie Mae and Freddie Mac announced a standard loan 
modification program that requires servicers to capitalize past due 
amounts, adjust interest rates to a fixed rate, and extend the 
amortization term to 480 months from the modification effective date. 
[Footnote 32] In addition, if the current LTV ratio is greater than 
115 percent, the servicer must forbear principal in the amount 
necessary to reduce the interest-bearing principal balance to 115 
percent LTV or up to 30 percent of the unpaid principal balance, 
whichever is less. Further, these standard modifications must reduce 
the borrower's monthly principal and interest payment by at least 10 
percentage points, and the borrower's housing expense-to-income ratio 
after the modification must be between 10 percent and 55 percent. 
Fannie Mae and Freddie Mac servicers are eligible to receive 
incentives of up to $1,600 for each modification, depending on how 
early in the delinquency the modification takes effect. According to 
FHFA officials, this standard program was based on Fannie Mae's 
proprietary modification program, which was determined to be more 
effective, in terms of borrower uptake, reduction in monthly payments, 
and ultimate borrower reperformance. Fannie Mae and Freddie Mac made 
these requirements and servicing practices effective for all loans on 
October 1, 2011.[Footnote 33] 

Other Federal Programs: 

FHA, VA, and USDA offer their own loan modification options for 
troubled mortgages.[Footnote 34] In addition to their established 
modification programs--which typically involve capitalizing past due 
amounts and limited interest rate reductions and term extensions--each 
agency has implemented an expanded modification program with features 
similar to HAMP.[Footnote 35] Each of these agencies requires 
servicers to evaluate borrowers for the established loss mitigation 
options first before considering them for the newer expanded 
modification programs. None of these programs use the Treasury NPV 
model to evaluate whether the loan should be modified, instead relying 
on servicers to make that determination. In addition, Treasury does 
not share the cost to investors of modifying loans under these 
programs, although FHA and USDA servicers and borrowers may be 
eligible for incentive payments from Treasury.[Footnote 36] 

* In May 2009, FHA received statutory authorization to offer expanded 
modifications as a permanent part of its loss mitigation program, 
establishing the framework for FHA-HAMP, which was put in place in 
August 2009. Although FHA uses "HAMP" in the name of its program, 
there are important differences compared to Treasury's HAMP. Similar 
to Treasury's HAMP, these modifications focus on bringing the 
borrower's monthly payment down to 31 percent of income by reducing 
the interest rate, extending the term of the loan, and (if necessary) 
deferring principal. However, these modifications do not capitalize 
past due amounts. Instead, the servicer provides an advance of the 
past due amount in order to bring the loan current, which the borrower 
must repay when the property is sold or the first lien is paid in 
full.[Footnote 37] According to FHA data, FHA-HAMP modifications 
resulted in average monthly payment reductions of about 19 percent in 
fiscal year 2011, compared to reductions of about 11 percent under its 
standard modification program. FHA completed more than 370,000 
standard modifications and 13,000 FHA-HAMP modifications between 
January 2009 and December 2011.The claims payments to servicers for 
these modifications totaled $446 million, and the servicer incentives' 
totaled $294 million. 

* In January 2010, VA issued guidelines for VA-HAMP, which will be 
available until Treasury's HAMP expires.[Footnote 38] This program 
follows Treasury's HAMP procedures for calculating the target monthly 
payment and uses the same waterfall (capitalization, interest rate 
reduction down to 2 percent, term extension, and principal 
forbearance) to achieve the necessary payment reduction to reach the 
targeted monthly payment (31 percent of income). Servicers completed 
about 30,000 modifications of VA loans between January 2009 and 
December 2011.[Footnote 39] The incentives for servicers associated 
with these modifications totaled about $15 million in costs to VA. 
[Footnote 40] 

* In August 2010, USDA published a final rule outlining procedures for 
special loan servicing (SLS). SLS procedures are a permanent part of 
USDA's loss mitigation efforts. These procedures expand its 
modification efforts by allowing for term extensions of up to 40 years 
from the date of modification (compared to the remaining term under 
the traditional modification program), further interest rate 
reductions, and if necessary, a mortgage recovery advance to cover 
past due amounts and other costs, such as canceled foreclosure fees. 
In addition, forborne principal may be included in this advance. USDA 
reimburses the servicer for advancing the funds for the mortgage 
recovery advance, which is payable when the borrower sells the 
property or pays off the loan (similar to FHA-HAMP). USDA approved 
servicing plans for nearly 13,000 traditional modifications and 143 
SLS modifications between January 2009 and December 2011. USDA does 
not offer servicers incentives for modifying loans. According to 
USDA's guidance, servicers are required to use the following waterfall 
in considering a loss mitigation action: repayment agreement, special 
forbearance, loan modification, SLS loan modification, preforeclosure 
sale (short sale) or deed-in-lieu of foreclosure. 

Although Treasury does not share the cost of modifying loans with 
investors under FHA-HAMP and USDA's SLS, it has put in place 
performance incentives that reward participating servicers and 
borrowers for certain modifications that remain current under these 
programs.[Footnote 41] Servicers must have entered into agreements 
with Treasury to participate in these incentive programs. According to 
Treasury, it offered VA the opportunity for its servicers and 
borrowers to receive incentive payments under MHA. However, VA 
officials told us that implementing this feature increased the 
complexity of its loan modification program and VA was concerned that 
veterans may be denied modifications. As a result, VA decided to issue 
its guidelines for VA-HAMP without the additional incentives. As of 
December 2011, Treasury had paid $5 million in servicer and borrower 
incentives using TARP funds for FHA-HAMP modifications that remained 
current, but had not made any incentive payments for USDA SLS 
modifications. 

Treasury's Housing Finance Agency Innovation Fund for the Hardest Hit 
Housing Markets (known as the Hardest Hit Fund or HHF program) has 
committed $7.6 billion of TARP funding to 18 states and the District 
of Columbia for programs such as loan modification programs, among 
other things, to meet the distinct challenges struggling homeowners in 
their state are facing. For example, California devoted more than $770 
million for reducing principal balances for low-to-moderate income 
borrowers with current LTV ratios greater than 115 percent. Arizona, 
Michigan, Nevada, North Carolina, Ohio, and Rhode Island are among the 
states with modification programs that include principal reduction. 
[Footnote 42] 

Servicers Have Also Focused on Loan Modification Programs to Help 
Address the Foreclosure Crisis: 

Apart from responses from federal agencies and the enterprises, 
servicers have responded to the foreclosure crisis by implementing new 
or adapting existing modification efforts. Comprehensive data on the 
number of proprietary permanent modifications completed by servicers 
are not readily available. However, the number of these modifications 
could be over 2 million, based on our analysis of estimates reported 
by HOPE NOW and data from the enterprises, FHA, VA, and USDA.[Footnote 
43] Servicers have their own proprietary modification programs that 
they may use for loans held in portfolio or in private label 
securitization trusts. According to mortgage industry participants and 
observers, prior to HAMP there was no industrywide standard for 
structuring loan modifications or determining whether they were 
appropriate in a given set of circumstances. HAMP provided a common 
structure--the NPV test and the waterfall of modification actions--
that servicers could adapt to provide modifications to borrowers who 
did not meet HAMP's eligibility requirements but who met the 
servicers' internal eligibility requirements for a modification. For 
example, while HAMP Tier 1 requires borrowers' monthly mortgage 
payments to be at least 31 percent of their income prior to 
modification, some servicers have a lower threshold for their 
proprietary programs.[Footnote 44] As a result, proprietary loan 
modification programs may reach homeowners who are ineligible for HAMP 
and other federal programs. 

Refinancing Programs Have Shifted to Reach Borrowers with Little or 
Negative Equity, but Associated Costs Relative to Participation Raise 
Questions: 

Refinancing a mortgage is not typically viewed as an action to 
mitigate a foreclosure, although it can reduce borrowers' monthly 
mortgage payments and thereby result in more sustainable mortgage 
loans. A number of federal and nonfederal programs are in place to 
help homeowners who are current on their mortgages but cannot 
refinance because of declining home values. Generally, these programs 
offer refinancing options that include accepting higher LTV ratios 
than have typically been allowed and lowering refinancing costs. 

The primary federal refinance effort has been the Home Affordable 
Refinance Program (HARP). It was announced alongside HAMP in February 
2009 as a way to provide for borrowers who were current on their 
mortgage payments but unable to refinance because the declines in home 
values had left them with little or no equity in their homes. HARP was 
intended to allow these borrowers to benefit from reduced interest 
rates in order to make their mortgage payments more affordable. Only 
mortgages owned or guaranteed by Fannie Mae and Freddie Mac are 
eligible. Initially, HARP targeted borrowers with current LTV ratios 
between 80 percent and 105 percent, but FHFA revised those 
requirements to include borrowers with current LTV ratios up to 125 
percent in July 2009. The standard mortgage insurance requirements for 
these refinance loans were relaxed so that borrowers who did not have 
mortgage insurance on their existing loan did not have to purchase it 
for their refinanced loan, something that would typically be required 
for a loan with an LTV ratio of more than 80 percent. HARP has 
resulted in approximately 1 million refinances as of December 31, 
2011.[Footnote 45] Approximately 91 percent of HARP refinances have 
gone to borrowers with current LTV ratios between 80 percent and 105 
percent. According to Fannie Mae, borrowers who refinanced in 2011 
under its HARP effort saved an average of $151 on their monthly 
mortgage payments.[Footnote 46] Both Fannie Mae and Freddie Mac 
expected that the program would have minimal net costs to them. 

To respond to continued weakness in the housing market, including the 
large number of borrowers with negative equity, FHFA announced changes 
to HARP in October 2011. These changes included removing the LTV cap 
to reach more underwater borrowers--those with current LTVs of more 
than 125 percent. Delivery fees the enterprises charged to lenders and 
that may be passed on to the borrower were also reduced. In addition, 
the enterprises eliminated representations and warranties tied to the 
original loan. FHFA also extended the program's expiration date to 
December 31, 2013.[Footnote 47] 

While HARP is available only to borrowers with loans owned or 
guaranteed by Fannie Mae or Freddie Mac, several other refinance 
efforts were put in place to reach other borrowers. For example, 
Treasury worked in conjunction with FHA to establish the FHA Refinance 
for Borrowers in Negative Equity Positions (FHA Short Refinance), 
which is partially supported using TARP funds.[Footnote 48] This 
program took effect in September 2010 and provides an opportunity to 
borrowers who are current on their mortgage payments and have loans 
not insured by FHA with current LTV ratios greater than 100 percent to 
refinance into an FHA-insured mortgage. In order to qualify, investors 
must write down at least 10 percent of the outstanding principal and 
achieve an LTV ratio of no more than 97.75 percent.[Footnote 49] 
Through December 2011, FHA Short Refinance has had limited success, 
reaching 646 borrowers. During the subsequent 5 months, however, 
program volume doubled to 1,303 loans. Although no borrowers who have 
refinanced under the program had defaulted as of December 31, 2011, 
Treasury had paid approximately $5.5 million in administrative fees to 
maintain an $8 billion letter of credit facility that will be used to 
pay Treasury's portion of claims on losses associated with loans 
refinanced under the program. The letter of credit is expected to be 
in force through September 2020--approximately 8 more years--and the 
administrative fees associated with this letter of credit could reach 
a maximum of $117 million. However, participation in the program was 
initially estimated at 1 million borrowers, and even with FHA's 
recently announced changes to the program, whether participation will 
reach the levels initially projected is not clear.[Footnote 50] With 
participation to date much lower than expected and future 
participation unknown, the costs to Treasury of maintaining the letter 
of credit facility may not be justified. As noted in our Standards for 
Internal Control in the Federal Government, program managers are 
responsible for achieving objectives of the agency while making 
effective and efficient use of the entity's resources.[Footnote 51] 

Federal agencies and the enterprises have other existing refinance 
programs, and although the aim of these programs is not necessarily to 
provide relief to struggling borrowers, some have features that lend 
themselves to being used by such borrowers. For example, an FHA 
streamlined refinance without an appraisal may help existing borrowers 
with negative equity that are current on their mortgage but struggling 
to make their mortgage payments because it allows lenders to refinance 
the entire outstanding principal balance.[Footnote 52] VA's Interest 
Rate Reduction Refinancing Loan requires no appraisal or credit 
underwriting, and borrowers may qualify with VA approval even if they 
are delinquent. 

Under the HHF program, several states are using funding for refinance 
programs that help borrowers with negative equity or second mortgages. 
For example, Ohio set aside $50 million to help borrowers refinance 
into mortgages with a reduced principal balance and lower monthly 
payments. Servicers receive up to $25,000 per borrower for each 
refinance. North Carolina has a program that would provide interest-
free loans of up to $30,000 to refinance certain second mortgages. 

Other Home Retention Efforts Provide Temporary Relief to Borrowers: 

Not all borrowers in financial distress need the terms of their 
mortgages changed (loan modification) or a new mortgage (refinance). 
Short-term relief may be sufficient for some borrowers to relieve a 
temporary shortfall in funds. Treasury's Home Affordable Unemployment 
Program (UP) provides assistance to borrowers whose hardship is 
related to unemployment. A borrower who is unemployed and requests 
assistance under HAMP (nonenterprise program only) must be evaluated 
for and, if qualified, must receive an UP forbearance plan before 
being considered for HAMP unless the servicer determines that a HAMP 
modification is the better alternative for the borrower. No TARP funds 
are used to support the UP program.[Footnote 53] Under UP, servicers 
must provide qualified borrowers with a forbearance period during 
which their mortgage payments are temporarily reduced or suspended for 
a minimum of 12 months. Upon completion of the forbearance period, 
borrowers must be evaluated for other loan workout programs. UP has 
resulted in nearly 18,000 forbearance agreements. 

Other federal agencies and the enterprises also have existing programs 
to provide temporary relief to borrowers. These programs may be formal 
or informal and typically take the form of forbearance agreements and 
repayment plans. FHA and USDA encourage servicers to use these options 
informally early in the delinquency to prevent borrowers from ever 
becoming 90 days delinquent. Fannie Mae and Freddie Mac reported that 
about 257,000 repayment plans and forbearance agreements had been 
completed under their existing programs since January 2009.[Footnote 
54] FHA servicers provided repayment plans to about 440,000 borrowers 
and special forbearance agreements to about 67,000 borrowers. In 
addition, servicers may advance funds to bring loans current, and FHA 
paid partial claims totaling $415 million to servicers to reimburse 
them for almost 47,000 such advances.[Footnote 55] Servicers reported 
that successful repayment plans and special forbearance agreements 
reached about 28,000 VA borrowers, while USDA approved special 
forbearance servicing plans for more than 5,000 borrowers. FHA 
extended the minimum term of its special forbearance program for 
unemployed borrowers from 4 months to 12 months, effective August 
2011. In January 2012, Freddie Mac and Fannie Mae announced changes to 
the forbearance options servicers can offer to unemployed borrowers, 
which increase the minimum forbearance period to 6 months, extendable 
for up to an additional 6 months if the borrower is still unemployed. 
[Footnote 56] 

Two recently established programs use federal funds to provide 
temporary relief to borrowers but are administered at the state level. 
Under HHF, several states have established programs to provide ongoing 
mortgage payment assistance to qualified borrowers who are unemployed 
or underemployed. Other programs provide one-time loans to qualified 
borrowers to resolve their delinquencies, which may be forgiven after 
a period of time (e.g., 3 years for California's program). The 
Emergency Homeowners Loan Program (EHLP) was authorized under the Dodd-
Frank Wall Street Reform and Consumer Protection Act, allowing HUD to 
provide short-term loans to unemployed borrowers to help meet their 
mortgage obligations in the 32 states and Puerto Rico that did not 
receive Hardest Hit Fund dollars.[Footnote 57] The program was 
designed to provide mortgage payment relief (up to $50,000 total) to 
eligible homeowners experiencing a drop in income of at least 15 
percent to cover past-due mortgage payments as well as a portion of 
the homeowner's mortgage payment for up to 24 months. HUD permitted 
five states with similar programs already in place--Connecticut, 
Delaware, Idaho, Maryland, and Pennsylvania--to direct their EHLP 
allocations to these programs. NeighborWorks America, a federally 
chartered nonprofit organization, administers EHLP for the remaining 
27 states and Puerto Rico. Applications for funds under EHLP were due 
in September 2011. HUD reported that, as of September 30, 2011, 
slightly more than half of the $1 billion allocated to the program had 
been obligated. As of December 27, 2011, more than 5,500 EHLP loans 
had been closed and nearly 6,000 EHLP loans were in the process of 
being closed. 

Programs that Facilitate Short Sales and Deeds-in-Lieu of Foreclosure 
Have Been Implemented or Expanded: 

When borrowers cannot afford to keep a property even with the 
assistance that a modification or temporary relief program would 
provide, they may seek alternatives that will allow them to transition 
to more affordable housing and avoid foreclosure. These alternatives 
are generally less expensive than going through the foreclosure 
process and often take less time. Treasury implemented the Home 
Affordable Foreclosure Alternatives (HAFA) program, which provides 
incentives for short sales and deeds-in-lieu of foreclosure as 
alternatives to foreclosure for borrowers who are unable or unwilling 
to complete the HAMP first-lien modification process. Borrowers, 
tenants, and certain other non-borrower occupants are eligible for 
relocation assistance of $3,000 and nonenterprise servicers receive a 
$1,500 incentive for completing a short sale or deed-in-lieu of 
foreclosure. In addition, investors are paid up to $2,000 for allowing 
short-sale proceeds to be distributed to holders of subordinate 
mortgages on the property. Servicers who participate in the HAMP first-
lien modification program are required to evaluate certain borrowers 
for HAFA, including those who do not pass the NPV test or who default 
on a HAMP modification. Deed-for-lease agreements, where the borrower 
is allowed to rent the property after giving up ownership of the 
property, are permitted but not required under HAFA. Treasury has 
provided about $100 million in HAFA incentive payments for 
approximately 26,000 short sales and deeds-in-lieu as of December 2011. 

Existing programs at the enterprises, FHA, VA, and USDA provide 
opportunities beyond HAFA for short sales and deeds-in-lieu. These 
programs are typically the final options for avoiding foreclosure. 
Fannie Mae and Freddie Mac reported completing almost 300,000 short 
sales and deeds-in-lieu since January 2009, of which only about 1,600 
were HAFA transactions.[Footnote 58] FHA paid claims on more than 
55,000 short sales and 3,000 deeds-in-lieu between January 2009 and 
December 2011. During the same period, servicers completed about 
13,000 short sales and about 2,000 deeds-in-lieu on VA loans, while 
USDA approved almost 3,400 short sales and about 230 deeds-in-lieu. 

In some cases, state programs funded under Treasury's HHF program 
include foreclosure alternatives and transition assistance for 
borrowers who cannot afford to keep their homes. For example, 
California and Rhode Island have programs to provide borrowers who are 
losing their homes through short sales or deeds-in-lieu with funds to 
secure new housing. 

Recent Federal and State Enforcement Actions Require Servicers to 
Assist Struggling Homeowners: 

In April 2011, OCC, the Federal Reserve, and the Office of Thrift 
Supervision (now part of OCC) sent consent orders to 14 servicers 
outlining changes they needed to make to their servicing processes to 
provide better service to borrowers.[Footnote 59] These changes 
included establishing compliance programs for their loss mitigation 
and loan modification activities and dedicating resources to 
communicating with borrowers in ways that avoid confusion and provide 
continuity (e.g., through providing a single point of contact). 
[Footnote 60] 

A recent joint federal government and state attorneys general 
agreement with the five largest servicers in the United States 
requires these servicers to provide financial relief to homeowners 
struggling to make their mortgage payments and implement new mortgage 
loan servicing standards.[Footnote 61] The settlement was the result 
of a federal and state investigation looking at alleged misconduct 
related to the origination and servicing of single family residential 
mortgages. The settlement requires the servicers to collectively 
dedicate $20 billion toward various forms of financial relief to 
homeowners, including: reducing the principal on loans for borrowers 
who are delinquent or at imminent risk of default and owe more on 
their mortgages than their homes are worth; refinancing loans for 
borrowers who are current on their mortgages but who owe more on their 
mortgage than their homes are worth; forbearance of principal for 
unemployed borrowers; antiblight provisions; short sales; transitional 
assistance; and benefits for service members. These servicers are 
required to pay an additional $5 billion in cash to the federal and 
state governments, which will be used to repay public funds lost as a 
result of servicer misconduct and to fund housing counseling, among 
other things. In addition to the financial commitment, servicers must 
implement new standards for servicing mortgages and handling 
foreclosures, and take steps to better ensure information provided in 
federal bankruptcy court is accurate.[Footnote 62] 

Millions of Loans Face Elevated Risk of Foreclosure and Indicators 
Show Housing Market Remains Weak: 

Based on our analysis of CoreLogic data that cover approximately 65 
percent to 70 percent of the prime and approximately 50 percent of the 
subprime mortgage market, we found that as of June 2011, 1.9-3.0 
million loans had characteristics associated with an increased 
likelihood of foreclosure, including delinquency and significant 
negative equity (current LTV ratios of 125 percent or 
higher).[Footnote 63] As our data do not cover the whole mortgage 
market, the actual number of loans with an increased likelihood of 
foreclosure is probably larger.[Footnote 64] For example, according to 
Mortgage Banker Association (MBA) data, as of June 2011, approximately 
4 million loans had been delinquent for 60 days or more.[Footnote 65] 
In addition, indicators of housing market conditions--including 
default and foreclosures--show that the housing market remained weak 
through 2011. Approximately 8 percent of loans were in default 90 days 
or more or in foreclosure as of the end of 2011, according to MBA 
data. Other key housing market indicators, such as home prices and 
home equity, remained near their recent lows. 

Foreclosure May Remain High Primarily Due to the Large Number of 
Delinquent Loans: 

Based on our analysis of CoreLogic data, we found that 1.9-3.0 million 
loans--1.6-2.6 million prime (7 to 11 percent) and between 312,000-
449,000 subprime loans (38 to 55 percent)--had characteristics that 
were associated with an increased likelihood of foreclosure, as of 
June 2011.[Footnote 66] For example, we considered loans where the 
borrower had missed two or more payments--that is, had been delinquent 
60 days or more--to be at an increased risk of foreclosure. As of June 
2011, approximately 1.6 million prime loans (7 percent) and 312,000 
subprime loans (38 percent) were 60 days or more delinquent (see 
figure 4). In addition to those loans that were 60 days or more 
delinquent, we identified other characteristics that were associated 
with an increased likelihood of foreclosure, such as certain levels of 
negative equity (owing more on a mortgage loan than the property is 
worth), high mortgage interest rate, or certain loan origination 
features. As of June 2011, approximately 1 million additional prime (5 
percent) and 136,000 additional subprime loans (17 percent) were 
current or less than 60 days delinquent but had two or more of these 
additional characteristics. 

Figure 4: Number of All Loans and Prime and Subprime Loans Delinquent 
60 Days or More Plus Loans Less Than 60 Days Delinquent with Two or 
More Additional Risk Characteristics, June 2009 through June 2011: 

[Refer to PDF for image: 3 stacked vertical bar graphs] 

Combined (prime and subprime): 

Year: 2009; 
Delinquent 60 days or more: 1.8 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 1.5 million. 

Year: 2010; 
Delinquent 60 days or more: 2.2 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 1.2 million. 

Year: 2011; 
Delinquent 60 days or more: 1.9 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 1.2 million. 

Prime: 

Year: 2009; 
Delinquent 60 days or more: 1.4 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 1.2 million. 

Year: 2010; 
Delinquent 60 days or more: 1.8 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 1.0 million. 

Year: 2011; 
Delinquent 60 days or more: 1.6 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 1.1 million. 

Subprime: 

Year: 2009; 
Delinquent 60 days or more: 0.4 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 0.3 million. 

Year: 2010; 
Delinquent 60 days or more: 0.4 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 0.2 million. 

Year: 2011; 
Delinquent 60 days or more: 0.3 million; 
Current or less than 60 days delinquent with two or more additional 
characteristics: 0.1 million. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics,and Freddie Mac's Primary Mortgage 
Market Survey. 

Notes: For loans that were current or less than 60 days delinquent, 
additional risk characteristics associated with an increased 
likelihood of foreclosure are: (1) current LTV of 125 percent or 
higher, (2) current LTV of 125 percent or higher and local area 
unemployment of 10 percent or higher, (3) interest rate 1.5 percentage 
points or higher above the market rate, and (4) origination loan 
features (credit score of 619 or less or LTV of 100 percent or 
higher). CoreLogic data cover approximately 70 percent of the prime 
and 50 percent of the subprime mortgage market. As our data do not 
cover the whole mortgage market, the actual number of loans with an 
increased likelihood of foreclosure is probably larger. 

[End of figure] 

CoreLogic's prime loans include conventional loans as well as loans 
insured or guaranteed by government entities, such as FHA and VA. 
Further, prime loans include loans servicers have identified as Alt-A 
loans. 

The number of borrowers with characteristics associated with an 
increased likelihood of foreclosure remained largely unchanged between 
June 2009 and 2011 for prime loans while the number of subprime loans 
declined (see figure 4). Among prime loans, the total number of loans 
with delinquency or two or more other characteristics associated with 
an increased likelihood of foreclosure decreased by less than 1 
percent between June 2009 and 2011. In contrast, during the same 
period the total number of subprime loans with characteristics 
associated with an increased likelihood of foreclosure decreased by 
approximately 30 percent. However, this decline is in part a result of 
the decreasing overall number of surviving subprime loans between June 
2009 and 2011. 

Not all borrowers with characteristics associated with an increased 
likelihood of foreclosure will require foreclosure mitigation 
assistance or respond to offers of assistance. Our analysis of 
CoreLogic data and officials with the enterprises and a federal agency 
revealed that some borrowers with characteristics associated with an 
increased likelihood of foreclosure continue to pay on time or, if 
they are delinquent, become current without intervention. Also, 
according to FHA and Treasury officials, some borrowers do not answer 
servicers' outreach efforts to provide foreclosure mitigation 
assistance.[Footnote 67] 

In total we analyzed the CoreLogic data for five characteristics 
associated with an increased likelihood of foreclosure.[Footnote 68] 
We identified these characteristics based on our prior work, 
interviews with and analyses conducted by other federal agencies, as 
well as Federal Reserve System and academic econometric modeling. 

* Delinquency: Agency officials and other housing market participants 
we contacted cited delinquency as a characteristic that could result 
in foreclosure, especially when borrowers fell two or more payments 
behind. Prime loans that were 60 days or more delinquent were less 
likely to be Fannie Mae or Freddie Mac loans and more likely to be 
held in portfolio or private label securities than the overall 
population of prime loans.[Footnote 69] We were unable to analyze the 
investors associated with subprime loans because the loan-level data 
for this segment of the market do not contain reliable information 
about the loan's investor. 

* Negative Equity: Negative equity is also associated with an 
increased likelihood of foreclosure, particularly when the loan is 
delinquent or has other characteristics associated with an increased 
likelihood of foreclosure.[Footnote 70] Within the data we analyzed, a 
total of 1.2 million prime (5 percent) and 157,000 subprime loans (19 
percent) in June 2011 had significant negative equity (a current LTV 
ratio of 125 percent or greater) and additional characteristics 
associated with an increased likelihood of foreclosure, including 
delinquency.[Footnote 71] Among loans with significant negative 
equity, more than one-third of prime loans (420,000) and more than 
half of subprime loans (93,000) were 60 days or more delinquent in 
June 2011. For those borrowers with limited ability to sell or 
refinance a home for a price that will cover the full mortgage, missed 
payments increase the likelihood of foreclosure. 

* Negative Equity and Unemployment: As we have previously reported, 
housing market stakeholders have suggested a relationship between 
unemployment and negative equity and the increased likelihood of 
foreclosure.[Footnote 72] Borrowers who are unemployed and have 
significant negative equity in their homes are unlikely to be able to 
sell them at a price high enough to cover the mortgage and move 
elsewhere to seek work. In June 2011, approximately 67 percent of 
prime and subprime loans we analyzed with negative equity were located 
in areas with high local unemployment (10 percent or greater). 

* Mortgage Interest Rate: Borrowers with a high mortgage interest 
rate--150 basis points or 1.5 percentage points or higher above the 
market rate--have an increased likelihood of foreclosure as the high 
interest rate results in relatively higher monthly payments and may 
indicate other problems that have limited a borrower's ability to 
refinance.[Footnote 73] As of June 2011, of the loans we analyzed 
approximately 1 million prime (5 percent) and 230,000 subprime loans 
(83 percent) had a high mortgage interest rate and additional 
characteristics that are associated with an increased likelihood of 
foreclosure, such as delinquency. Of loans with a high mortgage 
interest rate and additional characteristics, 40 percent of prime and 
29 percent of subprime loans had significant negative equity (LTV of 
125 percent or greater). Researchers have found that borrowers with 
significant negative equity have a limited ability to refinance to 
lower interest rates and lower monthly payments as a result of 
tightened underwriting standards that require low LTV ratios.[Footnote 
74] 

* Origination Loan Features: We have previously reported on the strong 
association between certain loan origination features--including low 
credit score and high LTV at the time of origination--and an increased 
likelihood of foreclosure.[Footnote 75] As of June 2011, of the loans 
we analyzed, approximately 899,000 prime (4 percent) and 314,000 
subprime loans (65 percent) had a combination of certain loan 
origination features (credit score of 619 or below or LTV of 100 
percent or higher) and other characteristics associated with an 
increased likelihood of foreclosure, including delinquency. Of loans 
with these certain origination features, approximately 16 percent of 
prime (407,000 loans) and almost half of subprime loans (201,000) were 
delinquent 60 days or more. 

Florida and Nevada were among the states with the largest percentage 
of loans (prime and subprime loans combined) with an increased 
likelihood of foreclosure (see figure 5). Of the loans we analyzed in 
June 2011, as many as 40 percent of loans in Nevada and 29 percent of 
loans in Florida had characteristics associated with an increased 
likelihood of foreclosure. California had a lower proportion of loans 
with characteristics associated with an increased likelihood of 
foreclosure compared to six other states--Arizona, Florida, Illinois, 
Michigan, Nevada, and Rhode Island. But California had the largest 
number of loans with these characteristics. In addition, several 
states--Arizona, California, Florida, Michigan, and Nevada--had 
relatively large proportions of loans within the CoreLogic data set 
with significant negative equity and additional characteristics, 
including delinquency, associated with an increased likelihood of 
foreclosure. In particular, over 10 percent of loans in Nevada and 
approximately 10 percent of loans in Florida had significant negative 
equity and were delinquent 60 days or more. 

Figure 5: Percentage of CoreLogic Loans with Delinquency and Those 
with Multiple Characteristics Associated with an Increased Likelihood 
of Foreclosure, June 2011: 

[Refer to PDF for image: 4 illustrated U.S. maps] 

Loans delinquent 60 days or more: 

Alabama: 5%; 
Alaska: 3%; 
Arizona: 8%; 
Arkansas: 5%; 
California: 4%; 
Colorado: 2%; 
Connecticut: 4%; 
Delaware: 4%; 
District of Columbia: 4%; 
Florida: 13%; 
Georgia: 5%; 
Hawaii: 4%; 
Idaho: 5%; 
Illinois: 7%; 
Indiana: 6%; 
Iowa: 5%; 
Kansas: 5%; 
Kentucky: 5%; 
Louisiana: 6%; 
Maine: 5%; 
Maryland: 6%; 
Massachusetts: 3%; 
Michigan: 7%; 
Minnesota: 3
Mississippi: 8%; 
Missouri: 5%; 
Montana: 3%; 
Nebraska: 3%; 
Nevada: 11%; 
New Hampshire: 3%; 
New Jersey: 5%; 
New Mexico: 5%; 
New York: 4%; 
North Carolina: 4%; 
North Dakota: 3%; 
Ohio: 6%; 
Oklahoma: 7%; 
Oregon: 4%; 
Pennsylvania: 6%; 
Rhode Island: 5%; 
South Carolina: 6%; 
South Dakota: 2%; 
Tennessee: 5%; 
Texas: 5%; 
Utah: 3%; 
Vermont: 4%; 
Virginia: 3%; 
Washington: 4%; 
West Virginia: 7%; 
Wisconsin: 5%; 
Wyoming: 3%. 

National: 1,895,890; 8%. 

Loans delinquent 60 days or more plus loans less than 60 days 
delinquent (including current loans) with two or more additional 
characteristics: 

Alabama: 10%; 
Alaska: 5%; 
Arizona: 16%; 
Arkansas: 9%; 
California: 14%; 
Colorado: 5%; 
Connecticut: 9%; 
Delaware: 10%; 
District of Columbia: 7%; 
Florida: 29%; 
Georgia: 14%; 
Hawaii: 9%; 
Idaho: 12%; 
Illinois: 15%; 
Indiana: 12%; 
Iowa: 9%; 
Kansas: 9%; 
Kentucky: 10%; 
Louisiana: 11%; 
Maine: 10%; 
Maryland: 12%; 
Massachusetts: 7%; 
Michigan: 22%; 
Minnesota: 7%; 
Mississippi: 14%; 
Missouri: 9%; 
Montana: 5%; 
Nebraska: 5%; 
Nevada: 40%; 
New Hampshire: 7%; 
New Jersey: 12%; 
New Mexico: 10%; 
New York: 9%; 
North Carolina: 9%; 
North Dakota: 4%; 
Ohio: 13%; 
Oklahoma: 11%; 
Oregon: 8%; 
Pennsylvania: 9%; 
Rhode Island: 16%; 
South Carolina: 11%; 
South Dakota: 4%; 
Tennessee: 10%; 
Texas: 9%; 
Utah: 8%; 
Vermont: 7%; 
Virginia: 7%; 
Washington: 9%; 
West Virginia: 11%; 
Wisconsin: 10%; 
Wyoming: 5%. 

National: 3,092,529; 13%. 

Loans with significant negative equity (LTV of 125 percent or higher) 
and additional characteristics: 

Alabama: 0%; 
Alaska: 0%; 
Arizona: 12%; 
Arkansas: 0%; 
California: 10%; 
Colorado: 1%; 
Connecticut: 1%; 
Delaware: 1%; 
District of Columbia: 0%; 
Florida: 22%; 
Georgia: 7%; 
Hawaii: 1%; 
Idaho: 1%; 
Illinois: 6%; 
Indiana: 0%; 
Iowa: 0%; 
Kansas: 1%; 
Kentucky: 0%; 
Louisiana: 0%; 
Maine: 0%; 
Maryland: 6%; 
Massachusetts: 1%; 
Michigan: 16%; 
Minnesota: 2%; 
Mississippi: 0%; 
Missouri: 1%; 
Montana: 0%; 
Nebraska: 0%; 
Nevada: 37%; 
New Hampshire: 0%; 
New Jersey: 2%; 
New Mexico: 2%; 
New York: 1%; 
North Carolina: 0%; 
North Dakota: 0%; 
Ohio: 2%; 
Oklahoma: 0%; 
Oregon: 3%; 
Pennsylvania: 0%; 
Rhode Island: 9%; 
South Carolina: 2%; 
South Dakota: 0%; 
Tennessee: 1%; 
Texas: 0%; 
Utah: 2%; 
Vermont: 0%; 
Virginia: 1%; 
Washington: 2%; 
West Virginia: 0%; 
Wisconsin: 1%; 
Wyoming: 0%. 

National: 1,326,741; 5%. 

Loans with high mortgage interest rates (1.5 percentage points above 
market rate) and additional characteristics: 

Alabama: 5%; 
Alaska: 3%; 
Arizona: 8%; 
Arkansas: 5%; 
California: 4%; 
Colorado: 2%; 
Connecticut: 4%; 
Delaware: 4%; 
District of Columbia: 4%; 
Florida: 13%; 
Georgia: 5%; 
Hawaii: 4%; 
Idaho: 6%; 
Illinois: 7%; 
Indiana: 6%; 
Iowa: 5%; 
Kansas: 5%; 
Kentucky: 6%; 
Louisiana: 6%; 
Maine: 5%; 
Maryland: 6%; 
Massachusetts: 3%; 
Michigan: 7%; 
Minnesota: 3%; 
Mississippi: 8%; 
Missouri: 6%; 
Montana: 3%; 
Nebraska: 3%; 
Nevada: 11%; 
New Hampshire: 3%; 
New Jersey: 5%; 
New Mexico: 5%; 
New York: 4%; 
North Carolina: 4%; 
North Dakota: 3%; 
Ohio: 6%; 
Oklahoma: 7%; 
Oregon: 4%; 
Pennsylvania: 4%; 
Rhode Island: 5%; 
South Carolina: 6%; 
South Dakota: 2%; 
Tennessee: 5%; 
Texas: 5%; 
Utah: 3%; 
Vermont: 4%; 
Virginia: 3%; 
Washington: 4%; 
West Virginia: 7%; 
Wisconsin: 5%; 
Wyoming: 3%. 

National: 1,329,645; 6%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey; map (MapInfo). 

Note: CoreLogic data shown in map is for prime and subprime loans 
combined. For loans that were current or less than 60 days delinquent, 
additional characteristics include: (1) current LTV of 125 percent or 
higher, (2) current LTV of 125 percent or higher and local area 
unemployment of 10 percent or greater, (3) mortgage interest rate 1.5 
percentage points or higher above the market rate, and (4) origination 
loan features (credit score of 619 or less or LTV of 100 percent or 
higher). CoreLogic data cover approximately 70 percent of prime and 
approximately 50 percent of subprime mortgage market. Our results do 
not represent the entire universe of mortgage loans. 

[End of figure] 

The Volume of Seriously Delinquent Loans Remains High: 

The number of seriously delinquent loans--those in default 90 days or 
more or in foreclosure--remained high in December 2011. According to 
MBA data, approximately 8 percent of loans were seriously delinquent 
nationwide, a fourfold increase compared with the number of such loans 
in June 2006, near the beginning of the current housing crisis. In 
comparison, during the prior 5 years from 2000 through 2005, 
approximately 2 percent of loans were seriously delinquent--
substantially fewer than the current number. Continued high levels of 
serious delinquencies suggest that the volume of future foreclosures 
will likely remain high as these troubled mortgages are resolved. 

Serious delinquency data covers both loans that have entered but not 
completed foreclosure and loans in default for 90 days or more. 
[Footnote 76] We found that the number of loans in foreclosure in 
December 2011 was slightly below the peak levels in March and December 
2010 but remained elevated with approximately 4 percent of loans in 
foreclosure (see figure 6). Similarly, the volume of loans in default 
in December 2011 experienced a drop below their peak levels, with less 
than 4 percent of loans in default in comparison to about 5 percent in 
December 2009. Further, the volume of loans in default and in 
foreclosure during the most recent recessionary period have been 
extraordinarily high compared to the previous two recessions. 

Figure 6: Percentage of Loans in Default 90 Days or More or in 
Foreclosure and Recession Periods, March 1979 through December 2011: 

[Refer to PDF for image: multiple line graph] 

Period of recession indicated on graph: 

1980, Q1-Q3; 
1981, Q3-1982 Q4; 
1990, Q2-1991, Q1; 
2001; 
2007, Q4-2009, Q2. 

1979: 
In foreclosure: 0.31%; 
In default: 0.47%; 

1980; 
In foreclosure: 0.32%; 
In default: 0.54%; 

1981; 
In foreclosure: 0.44%; 
In default: 0.66%; 

1982; 
In foreclosure: 0.53%; 
In default: 0.72%; 

1983; 
In foreclosure: 0.71%; 
In default: 0.86%; 

1984; 
In foreclosure: 0.68%; 
In default: 0.89%; 

1985; 
In foreclosure: 0.79%; 
In default: 0.98%; 

1986; 
In foreclosure: 0.87%; 
In default: 1.01%; 

1987; 
In foreclosure: 1.09%; 
In default: 1.04%; 

1988; 
In foreclosure: 1.07%; 
In default: 0.89%; 

1989; 
In foreclosure: 0.95%; 
In default: 0.83%; 

1990; 
In foreclosure: 0.97%; 
In default: 0.7%; 

1991; 
In foreclosure: 0.97%; 
In default: 0.78%; 

1992; 
In foreclosure: 1.04%; 
In default: 0.8%; 

1993; 
In foreclosure: 1%; 
In default: 0.77%; 

1994; 
In foreclosure: 0.94%; 
In default: 0.75%; 

1995; 
In foreclosure: 0.86%; 
In default: 0.7%; 

1996; 
In foreclosure: 0.95%; 
In default: 0.68%; 

1997; 
In foreclosure: 1.08%; 
In default: 0.55%; 

1998; 
In foreclosure: 1.17%; 
In default: 0.6%; 

1999; 
In foreclosure: 1.22%; 
In default: 0.6%; 

2000; 
In foreclosure: 1.17%; 
In default: 0.55%; 

2001; 
In foreclosure: 1.24%; 
In default: 0.66%; 

2002; 
In foreclosure: 1.51%; 
In default: 0.8%; 

2003; 
In foreclosure: 1.43%; 
In default: 0.83%; 

2004; 
In foreclosure: 1.29%; 
In default: 0.85%; 

2005; 
In foreclosure: 1.08%; 
In default: 0.81%; 

2006; 
In foreclosure: 0.98%; 
In default: 0.95%; 

2007; 
In foreclosure: 1.28%; 
In default: 0.95%; 

2008; 
In foreclosure: 2.47%; 
In default: 1.56%; 

2009; 
In foreclosure: 3.85%; 
In default: 3.39%; 

2010; 
In foreclosure: 4.63%; 
In default: 4.91%; 

2011; 
In foreclosure: 4.52%; 
In default: 3.58%. 

Source: MBA; National Bureau of Economic Research. 

[End of figure] 

Other Key Indicators Suggest the Housing Market Remains Weak: 

In addition to the high volume of loans in foreclosure and default in 
December 2011, other key national indicators of the housing market, 
such as home prices, home equity, and unemployment, suggest that the 
housing market has not yet begun to recover. Decreases in home prices 
have played a central role in the current crisis and continue to be 
well below their peak nationwide. According to CoreLogic's Home Price 
Index, as of June 2011 home prices across the country had fallen 32 
percent from their peak in April 2006 (see figure 7). The decrease 
follows a 10-year period of significant home price growth, with the 
index more than doubling between April 1996 and 2006. During periods 
in 2009 and 2010, home prices showed some slight improvement, but in 
early 2011 home prices fell again and reached their lowest level since 
2002. Home prices rose slightly in June 2011 but remained well below 
the 2006 levels. 

Figure 7: Home Prices and Recession Periods, January 1976 through June 
2011: 

[Refer to PDF for image: line graph] 

Period of recession indicated on graph: 

1980, Q1-Q3; 
1981, Q3-1982 Q4; 
1990, Q2-1991, Q1; 
2001; 
2007, Q4-2009, Q2. 

1976; 
Home Price Index: 23.16. 

1977; 
Home Price Index: 24.31. 

1978; 
Home Price Index: 29.39. 

1979; 
Home Price Index: 33.72. 

1980; 
Home Price Index: 38.87. 

1981; 
Home Price Index: 42.18. 

1982; 
Home Price Index: 44.56. 

1983; 
Home Price Index: 45.33. 

1984; 
Home Price Index: 47.94. 

1985; 
Home Price Index: 50.23. 

1986; 
Home Price Index: 53.99. 

1987; 
Home Price Index: 59.01. 

1988; 
Home Price Index: 64.97. 

1989; 
Home Price Index: 71.19. 

1990; 
Home Price Index: 75.14. 

1991; 
Home Price Index: 74.41. 

1992; 
Home Price Index: 74.389. 

1993; 
Home Price Index: 74.59. 

1994; 
Home Price Index: 76.71. 

1995; 
Home Price Index: 77.51. 

1996; 
Home Price Index: 79.52. 

1997; 
Home Price Index: 81.56. 

1998; 
Home Price Index: 85.96. 

1999; 
Home Price Index: 92.55. 

2000; 
Home Price Index: 100. 

2001; 
Home Price Index: 110.65. 

2002; 
Home Price Index: 119.99. 

2003; 
Home Price Index: 132.01. 

2004; 
Home Price Index: 147.84. 

2005; 
Home Price Index: 172.71. 

2006; 
Home Price Index: 198.27. 

2007; 
Home Price Index: 197.11. 

2008; 
Home Price Index: 176.67. 

2009; 
Home Price Index: 143.15. 

2010; 
Home Price Index: 143.26. 

2011; 
Home Price Index: 135.86. 

Source: CoreLogic Home Price Index, National Bureau of Economic 
Research. 

[End of figure] 

Home values have declined faster than home mortgage debt. As a result, 
homeowners have lost substantial equity in their homes. As of December 
2011, national home equity (the difference between aggregate home 
value and mortgage debt owned by homeowners) was approximately $3.7 
trillion less than total home mortgage debt (see figure 8). In part 
because of the decline in home prices, households collectively lost 
approximately $9.1 trillion (in 2011 constant dollars) in home equity 
between 2005 and 2011. In contrast, aggregate home mortgage debt--a 
measure of the value of household-owned real estate debt--continued to 
increase by an additional $1.2 trillion between 2005 and 2007, 
reflecting the continued looseness of the credit markets early in the 
crisis as mortgage originations to low-credit quality borrowers 
continued to expand. Home mortgage debt has fallen slightly from its 
highest point in 2007 to approximately $10 trillion in 2011--a 
development that a study by the Federal Reserve Bank of New York 
attributed to consumers paying down debt and lenders' tightened 
lending standards.[Footnote 77] Between 2006 and 2007, steep declines 
in house values left the nation's homeowners, for the first time since 
the data were kept in 1945, holding home mortgage debt that surpassed 
the equity in their homes. 

Figure 8: Value of Home Equity and Aggregate Mortgage Debt and 
Recession Periods, 1945 through 2011: 

[Refer to PDF for image: line graph] 

Period of recession indicated on graph: 

1980, Q1-Q3; 
1981, Q3-1982 Q4; 
1990, Q2-1991, Q1; 
2001; 
2007, Q4-2009, Q2. 

Year: 1945; 
Home equity: $1.2 trillion; 
Aggregate mortgage debt: $0.2 trillion. 

Year: 1946; 
Home equity: $1.3 trillion; 
Aggregate mortgage debt: $0.3 trillion. 

Year: 1947; 
Home equity: $1.5 trillion; 
Aggregate mortgage debt: $0.3 trillion. 

Year: 1948; 
Home equity: $1.6 trillion; 
Aggregate mortgage debt: $0.3 trillion. 

Year: 1949; 
Home equity: $1.7 trillion; 
Aggregate mortgage debt: $0.4 trillion. 

Year: 1950; 
Home equity: $1.9 trillion; 
Aggregate mortgage debt: $0.4 trillion. 

Year: 1951; 
Home equity: $1.9 trillion; 
Aggregate mortgage debt: $0.4 trillion. 

Year: 1952; 
Home equity: $2.0 trillion; 
Aggregate mortgage debt: $0.5 trillion. 

Year: 1953; 
Home equity: $2.1 trillion; 
Aggregate mortgage debt: $0.6 trillion. 

Year: 1954; 
Home equity: $2.2 trillion; 
Aggregate mortgage debt: $0.6 trillion. 

Year: 1955; 
Home equity: $2.3 trillion; 
Aggregate mortgage debt: $0.7 trillion. 

Year: 1956; 
Home equity: $2.4 trillion; 
Aggregate mortgage debt: $0.8 trillion. 

Year: 1957; 
Home equity: $2.5 trillion; 
Aggregate mortgage debt: $0.9 trillion. 

Year: 1958; 
Home equity: $2.5 trillion; 
Aggregate mortgage debt: $0.9 trillion. 

Year: 1959; 
Home equity: $2.6 trillion; 
Aggregate mortgage debt: $1.0 trillion. 

Year: 1960; 
Home equity: $2.6 trillion; 
Aggregate mortgage debt: $1.1 trillion. 

Year: 1961; 
Home equity: $2.7 trillion; 
Aggregate mortgage debt: $1.2 trillion. 

Year: 1962; 
Home equity: $2.7 trillion; 
Aggregate mortgage debt: $1.3 trillion. 

Year: 1963; 
Home equity: $2.7 trillion; 
Aggregate mortgage debt: $1.4 trillion. 

Year: 1964; 
Home equity: $2.7 trillion; 
Aggregate mortgage debt: $1.5 trillion. 

Year: 1965; 
Home equity: $2.8 trillion; 
Aggregate mortgage debt: $1.6 trillion. 

Year: 1966; 
Home equity: $2.9 trillion; 
Aggregate mortgage debt: $1.6 trillion. 

Year: 1967; 
Home equity: $3.0 trillion; 
Aggregate mortgage debt: $1.7 trillion. 

Year: 1968; 
Home equity: $3.3 trillion; 
Aggregate mortgage debt: $1.7 trillion. 

Year: 1969; 
Home equity: $3.4 trillion; 
Aggregate mortgage debt: $1.7 trillion. 

Year: 1970; 
Home equity: $3.4 trillion; 
Aggregate mortgage debt: $1.7 trillion. 

Year: 1971; 
Home equity: $3.6 trillion; 
Aggregate mortgage debt: $1.7 trillion. 

Year: 1972; 
Home equity: $4.0 trillion; 
Aggregate mortgage debt: $1.8 trillion. 

Year: 1973; 
Home equity: $4.4 trillion; 
Aggregate mortgage debt: $1.9 trillion. 

Year: 1974; 
Home equity: $3.8 trillion; 
Aggregate mortgage debt: $1.9 trillion. 

Year: 1975; 
Home equity: $4.0 trillion; 
Aggregate mortgage debt: $1.9 trillion. 

Year: 1976; 
Home equity: $4.2 trillion; 
Aggregate mortgage debt: $2.0 trillion. 

Year: 1977; 
Home equity: $4.8 trillion; 
Aggregate mortgage debt: $2.2 trillion. 

Year: 1978; 
Home equity: $5.2 trillion; 
Aggregate mortgage debt: $2.4 trillion. 

Year: 1979; 
Home equity: $5.5 trillion; 
Aggregate mortgage debt: $2.6 trillion. 

Year: 1980; 
Home equity: $5.5 trillion; 
Aggregate mortgage debt: $2.5 trillion. 

Year: 1981; 
Home equity: $5.7 trillion; 
Aggregate mortgage debt: $2.5 trillion. 

Year: 1982; 
Home equity: $5.6 trillion; 
Aggregate mortgage debt: $2.4 trillion. 

Year: 1983; 
Home equity: $5.6 trillion; 
Aggregate mortgage debt: $2.5 trillion. 

Year: 1984; 
Home equity: $6.2 trillion; 
Aggregate mortgage debt: $2.7 trillion. 

Year: 1985; 
Home equity: $6.8 trillion; 
Aggregate mortgage debt: $3.0 trillion. 

Year: 1986; 
Home equity: $7.2 trillion; 
Aggregate mortgage debt: $3.4 trillion. 

Year: 1987; 
Home equity: $7.5 trillion; 
Aggregate mortgage debt: $3.6 trillion. 

Year: 1988; 
Home equity: $7.7 trillion; 
Aggregate mortgage debt: $3.9 trillion. 

Year: 1989; 
Home equity: $8.0 trillion; 
Aggregate mortgage debt: $4.1 trillion. 

Year: 1990; 
Home equity: $7.4 trillion; 
Aggregate mortgage debt: $4.3 trillion. 

Year: 1991; 
Home equity: $7.1 trillion; 
Aggregate mortgage debt: $4.4 trillion. 

Year: 1992; 
Home equity: $7.1 trillion; 
Aggregate mortgage debt: $4.6 trillion. 

Year: 1993; 
Home equity: $7.0 trillion; 
Aggregate mortgage debt: $4.7 trillion. 

Year: 1994; 
Home equity: $7.0 trillion; 
Aggregate mortgage debt: $4.8 trillion. 

Year: 1995; 
Home equity: $7.0 trillion; 
Aggregate mortgage debt: $4.9 trillion. 

Year: 1996; 
Home equity: $7.0 trillion; 
Aggregate mortgage debt: $5.1 trillion. 

Year: 1997; 
Home equity: $7.2 trillion; 
Aggregate mortgage debt: $5.2 trillion. 

Year: 1998; 
Home equity: $7.8 trillion; 
Aggregate mortgage debt: $5.6 trillion. 

Year: 1999; 
Home equity: $8.4 trillion; 
Aggregate mortgage debt: $5.9 trillion. 

Year: 2000; 
Home equity: $9.7 trillion; 
Aggregate mortgage debt: $6.3 trillion. 

Year: 2001; 
Home equity: $10.5 trillion; 
Aggregate mortgage debt: $6.7 trillion. 

Year: 2002; 
Home equity: $11.1 trillion; 
Aggregate mortgage debt: $7.5 trillion. 

Year: 2003; 
Home equity: $11.7 trillion; 
Aggregate mortgage debt: $8.4 trillion. 

Year: 2004; 
Home equity: $13.3 trillion; 
Aggregate mortgage debt: $9.3 trillion. 

Year: 2005; 
Home equity: $15.2 trillion; 
Aggregate mortgage debt: $10.2 trillion. 

Year: 2006; 
Home equity: $14.4 trillion; 
Aggregate mortgage debt: $11.0 trillion. 

Year: 2007; 
Home equity: $11.2 trillion; 
Aggregate mortgage debt: $11.4 trillion. 

Year: 2008; 
Home equity: $7.4 trillion; 
Aggregate mortgage debt: $10.9 trillion. 

Year: 2009; 
Home equity: $7.1 trillion; 
Aggregate mortgage debt: $10.8 trillion. 

Year: 2010; 
Home equity: $6.7 trillion; 
Aggregate mortgage debt: $10.4 trillion. 

Year: 2011; 
Home equity: $6.1 trillion; 
Aggregate mortgage debt: $9.8 trillion. 

Source: Federal Reserve, Flow of Funds Account of the United States; 
Bureau of Labor Statistics, and National Bureau of Economic Research. 

Note: In 2011 constant dollars. 

[End of figure] 

Studies of housing market conditions we reviewed and some agency 
officials with whom we spoke identified the current sustained high 
unemployment rate as a key factor in the housing market's continued 
poor performance.[Footnote 78] The unemployment rate more than doubled 
between April 2006--the peak period of home price increases when it 
stood at 4.7 percent--and October 2009, when it reached its highest 
level since 1984 of 10.1 percent. Although the rate had declined to 
less than 9 percent at the end of 2011, it has remained above 8 
percent since February 2009--the longest sustained period at this 
level since 1948. In addition, the gap between the standard 
unemployment measure and a more comprehensive measure that includes 
underemployed and discouraged workers grew significantly between April 
2006 and December 2011.[Footnote 79] This increase suggests that a 
growing number of workers have been employed below their capacity, a 
development that may result in their being unable to meet future 
mortgage obligations and will further contribute to reduced housing 
demand, additional foreclosures, and falling home prices. 

In contrast to other indicators of the housing market we analyzed, 
home affordability was at record-high levels at the end of 2011, 
reflecting the decline in home prices and historically low interest 
rates. Based on our review of economic data, home affordability 
appeared to have increased 72 percent between March 2006 and December 
2011. Improved home affordability may encourage new buyers to purchase 
homes and thus increase demand for housing and provide support for 
home values. However, according to the Federal Reserve and Joint 
Center for Housing Studies at Harvard University, many potential 
homebuyers have been reluctant or unable to purchase a home due to 
fear of further home price declines, uncertain income prospects, and 
difficulties obtaining mortgage credit.[Footnote 80] Further according 
to Census data on household growth, average annual household growth 
from 2008 through 2011 was less than half that of 2000 through 2007; 
although the most recent data indicate an increase in household 
formation in 2011 compared to growth in 2008 through 2010.[Footnote 81] 

Enhancing Current Federal Foreclosure Mitigation Efforts Could Improve 
Their Effectiveness: 

Most stakeholders we contacted said that enhancing existing federal 
foreclosure mitigation efforts was the most appropriate action to take 
to facilitate the recovery of the housing market, and we found that 
opportunities existed for federal agencies to improve the 
effectiveness of their efforts. Our analysis of available data 
indicated that a large number of struggling homeowners could be 
eligible for federal foreclosure mitigation programs and a large 
number with FHA insured or enterprise-backed loans are at an increased 
risk for foreclosure because of their delinquency status. As the 
following examples illustrate. 

* Treasury estimated that as of December 31, 2011, about 900,000 
borrowers could be eligible for its HAMP modification program. This 
number included loans that were 60 days or more delinquent and were 
serviced by participating HAMP servicers that appeared to meet the 
program's eligibility requirements.[Footnote 82] 

* Fannie Mae and Freddie Mac collectively had about 1.1 million loans 
that were seriously delinquent as of the quarter ending on December 
31, 2011.[Footnote 83] 

* FHA reported that about 711,000 of its loans were seriously 
delinquent for the month of December 2011.[Footnote 84] Furthermore, 
between March 2010 and June 2011 FHA's serious delinquency rate ranged 
between 8.2 and 8.8 percent but between June and December 2011, it 
climbed about 1.4 percentage points to 9.5 percent.[Footnote 85] 

Although federal agencies and the enterprises have taken steps to help 
ensure that servicers reached struggling borrowers, not all agencies 
were conducting the necessary analyses to determine which of their 
foreclosure mitigation actions were most effective. Specifically, we 
found that not all federal agencies consider current data on redefault 
rates and evaluate the total costs of various loan modification 
actions to weigh the tradeoffs between assisting borrowers to retain 
their homes and protecting taxpayers' financial interests. As a 
result, agencies may not be making the best use of foreclosure 
mitigation funds. Additionally, not all federal agencies analyze loan 
and borrower characteristics that could influence the success of these 
actions. Doing so would help in determining which actions would be 
most successful both in aiding homeowners and in containing costs. We 
also found some evidence to suggest that principal forgiveness as a 
mitigation tool could help some borrowers--those with significant 
negative equity--but that federal agencies and the enterprises were 
not using it consistently and some were not convinced of its overall 
merits. Moreover, there are other policy issues to be considered when 
determining how widely this option should be used, including moral 
hazard (borrowers strategically defaulting to become eligible for 
assistance). 

Stakeholders provided us with a variety of reasons for not introducing 
new federal programs at this time. Specifically, most stakeholders 
said that introducing entirely new initiatives at this stage could be 
counterproductive. Such initiatives, they said, would create 
additional uncertainty in the market and could further delay a 
recovery because of the time and costs that would be involved in 
implementing them. Further, some stakeholders noted that support for 
new initiatives that required additional federal funding would be 
difficult to implement in the current budgetary environment. 
Stakeholders also said that not all borrowers who were at risk of 
foreclosure would be able to avoid foreclosure through any action and 
that some borrowers might not be interested in doing so. For example, 
Treasury officials said that some underwater borrowers could have 
already decided that foreclosure was in their best economic interest 
and may not want or seek assistance. Finally, some industry observers 
have argued that foreclosure mitigation efforts hinder the housing 
market's recovery by simply delaying unavoidable foreclosures. 

Most but Not All Federal Agencies and the Enterprises Have Increased 
Efforts to Reach Struggling Borrowers Early in a Delinquency: 

All of the federal agencies--Treasury, FHA, VA, and USDA--as well as 
the enterprises have policies in place for servicers to follow once a 
borrower becomes delinquent. These policies are consistent with the 
results of our econometric analysis of CoreLogic and HAMP data that 
found that reaching borrowers early on, when they had missed fewer 
payments, resulted in more successful loan modifications.[Footnote 86] 
For instance, the redefault rate for loans that were delinquent less 
than 60 days at the time of modification was 9 percent, but the 
redefault rates for loans that were delinquent 90 days or more was 17 
percent. The rate was even higher for those already in foreclosure--19 
percent. In general, the agencies and the enterprises require 
servicers to make contact with delinquent borrowers, identify the 
reason for the delinquency, and provide borrowers information on 
available options to help them resolve the delinquency. However, 
Treasury and FHA officials said that servicers were unable to reach 
many borrowers, which may hinder efforts to provide foreclosure 
mitigation actions. For example, servicers have reported to FHA that 
about 13 percent of the delinquent borrowers they attempt to contact 
do not respond. As a result, with the exception of USDA, these 
agencies and the enterprises have taken a number of steps to reach 
more borrowers and monitor servicers' ability to reach struggling 
borrowers. 

* In 2010, Treasury began airing nationwide public service 
announcements and conducting homeowner events across the country in 
order to raise the profile of its foreclosure mitigation programs and 
help struggling homeowners contact their servicers. Based upon the 
results from on-site and remote compliance reviews, Treasury began to 
rate the largest servicers' procedures and controls for reaching out 
to delinquent borrowers as part of its MHA Servicer 
Assessments.[Footnote 87] Issues related to identifying and contacting 
potentially eligible borrowers were contributing factors to Treasury's 
decision to withhold servicer incentive payments from certain 
servicers. 

* FHA requires servicers to report monthly on delinquent borrowers, 
including the extent of the delinquency and the most recent action the 
servicer has taken. In 2011, FHA piloted a scorecard designed to 
comprehensively evaluate servicers' loss mitigation activity, 
including their compliance with servicing guidelines and regulations. 
Further, FHA has been identifying best practices for reaching 
borrowers. For example, one servicer reported having increased success 
contacting borrowers earlier in a delinquency using text messages and 
email instead of telephone calls and letters, and FHA has shared this 
practice with other servicers. 

* In 2011, Fannie Mae and Freddie Mac revised the procedures servicers 
must follow when contacting borrowers to help ensure that all those 
eligible know about the options that may be available to them. The 
enterprises have also developed a performance metric to track 
servicers' compliance with these requirements. Further, they recently 
implemented changes to HARP program requirements by eliminating the 
maximum LTV ratio and allowing servicers to solicit borrowers who may 
be eligible for the program. In addition, the enterprises have 
required servicers to report monthly on delinquent borrowers, 
including on the extent of the delinquency and the most recent action 
the servicer has taken. 

* VA assigns a staff member to each case after a borrower becomes 60 
days delinquent to monitor the servicer's efforts and provide 
assistance to the borrower. The VA staff member performs an "adequacy 
of servicing" review if the delinquency is not resolved before the 
borrower becomes 120 days past due on the loan. If servicing is found 
to be adequate at that point, VA will continue to perform these 
reviews every 90 days until the delinquency is resolved. If the VA 
staff member determines that the servicer has not taken adequate steps 
to reach and assist the borrower, the VA staff member will try to 
contact the borrower directly and then may work with the servicer to 
identify the best foreclosure mitigation action. 

In contrast, USDA does not require servicers to report information 
about their efforts to reach borrowers, and its systems are not set up 
to determine whether servicers are complying with USDA's requirements. 
For example, servicers report monthly on loans that are at least 30 
days delinquent, but USDA does not require servicers to report on 
efforts to contact the borrower early in the delinquency or on the 
extent to which they have offered informal foreclosure mitigation 
options. Once a loan is 90 days delinquent, servicers must submit 
servicing plans to USDA that outline recommended foreclosure 
mitigation actions, which USDA has to approve. But if a servicer 
determines that no foreclosure mitigation actions are appropriate, it 
does not need to submit a servicing plan. According to USDA officials, 
they would not have information on the servicer's efforts to reach the 
borrower or offers of informal actions and may not become aware of the 
servicer's decision not to offer a formal foreclosure mitigation 
action until after the loan goes into foreclosure and the servicer 
files a claim. USDA officials said that they review each loss claim to 
determine whether the servicer followed requirements for evaluating 
the borrower for foreclosure mitigation options. However, the absence 
of comprehensive and timely information limits USDA's ability to 
assess and identify opportunities to improve servicers' efforts to 
reach struggling borrowers and prevent foreclosures. 

The enterprises and Treasury have adopted additional changes to 
policies and procedures with the goal of expanding the reach of 
existing programs to additional borrowers. The enterprises' standard 
modification programs, which were announced in mid-2011 under FHFA's 
Servicer Alignment Initiative, are intended to help ensure that 
borrowers who do not qualify for HAMP Tier 1 modifications are treated 
consistently at the next step in the evaluation process. Before these 
programs were put in place, terms of non-HAMP modifications varied 
among the enterprises and were set independently by Fannie Mae or 
Freddie Mac. Treasury's recently announced HAMP Tier 2 modification 
largely aligns with the enterprises' standard loan modification and is 
intended to expand HAMP to a larger pool of potentially eligible 
borrowers. This change provides servicers and borrowers with 
consistency across programs, regardless of the investor (i.e., Fannie 
Mae or Freddie Mac, private-label security owner, private lender). 
Further, this change could simplify servicers' operations, improve 
their efficiency, and enhance their capacity, all of which have been 
long-standing concerns. 

FHA, VA, and USDA Have Not Done the Analyses Needed to Minimize Costs 
and Assess the Effectiveness of their Actions: 

Treasury and the enterprises incorporate analysis of long-term costs 
into their loss mitigation program design and management through 
redefault models and analysis, but the other agencies do not. The 
models that Treasury and the enterprises use incorporate data on the 
likelihood of redefault for different loan and borrower 
characteristics and are tailored to their particular pools of 
borrowers and costs. Specifically, the models incorporate data on 
redefault rates that are associated with loan and borrower 
characteristics, such as borrower income and expenses, delinquency 
status, current LTV, borrower credit score, and size of monthly 
payment reduction. Treasury and the enterprises use the results from 
these analyses to determine the eligibility requirements and loan 
modification terms for their loan modification programs. As part of 
this analysis, Treasury and the enterprises analyze redefault rates--
one of the most common measures of the effectiveness of foreclosure 
mitigation efforts--for various types of foreclosure mitigation 
actions. According to Fannie Mae and Freddie Mac officials, recent 
changes to their non-HAMP loan modification programs--particularly the 
introduction of a trial period plan--resulted from analysis of 
differences in redefault rates and the size of monthly payment 
reduction between their various loan modification actions. 

Our own analysis of the performance of loans identified certain loan 
and borrower characteristics that reduce the likelihood of redefault. 
When controlling for observable borrower and loan characteristics, our 
analysis of CoreLogic data found that greater reductions in monthly 
mortgage payments reduced the 6-month redefault rate (see figure 
9).[Footnote 88] We also found that reducing monthly mortgage payments 
by 40 to 49 percent resulted in the lowest 6-month redefault rates. 
Specifically, loans with monthly payment reductions of 40 to 49 
percent had redefault rates of 12 percent--as compared to a redefault 
rate of 20 percent for loans that received a payment reduction of less 
than 10 percent. Larger reductions in the monthly payment--that is, 50 
percent or more--did not result in further improvement in the 6-month 
redefault rate. 

Figure 9: Percentage Decrease in Monthly Payments and 6-month 
Redefault Rates of Loans Modified, January 2009 through December 2010: 

[Refer to PDF for image: line graph] 

Percentage decrease in monthly payments: Less than 10; 
Redefault rate: 20%. 

Percentage decrease in monthly payments: 10-19; 
Redefault rate: 17%. 

Percentage decrease in monthly payments: 20-29; 
Redefault rate: 16%. 

Percentage decrease in monthly payments: 30-39; 
Redefault rate: 14%. 

Percentage decrease in monthly payments: 40-49; 
Redefault rate: 12%. 

Percentage decrease in monthly payments: 50-59; 
Redefault rate: 13%. 

Percentage decrease in monthly payments: 60 or more; 
Redefault rate: 13%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Note: The results were similar for the performance of the loans 12 and 
18 months after modification. Appendix V includes additional 
discussion of the methodology and results of our econometric analysis. 

[End of figure] 

According to our analysis, payment reductions for the majority of FHA 
and VA loan modifications were smaller than payment reductions for 
other types of modified loans.[Footnote 89] As figure 10 illustrates, 
45 percent of FHA-modified loans and about 40 percent of VA-modified 
loans had payment reductions of less than 10 percent of the original 
mortgage payment. In contrast, the majority of modifications for 
enterprise-prime loans, nonenterprise-prime loans, and subprime loans 
had resulted in payment reductions greater than 20 percent, and in 
some cases were much larger. For example, more than half of enterprise-
prime modified loans and 39 percent of subprime loans had payment 
reductions of 30 percent or more of the original monthly mortgage 
payment. Furthermore, our analysis found that the predicted 6-month 
redefault rate for FHA-modified loans was several percentage points 
higher than for the other loan types--for example, FHA's rate was 22 
percent, while the rate for subprime loans was 17 percent. However, 
the predicted 6-month redefault rate for VA-modified loans was 15 
percent, which was similar to other loan types. 

Figure 10: Predicted 6-Month Redefault Rates and Distribution of 
Payment Reductions of Loans Modified by Loan Type and Size of Payment 
Reduction, January 2009 through December 2010: 

[Refer to PDF for image: 5 vertical bar graphs] 

Fannie Mae and Freddie Mac prime loans (Observations: 32,950): 

Predicted default rate: 15%. 

Predicted default rate with Monthly payment reduction: 
Less than 10%: 11%; 
10% to 19%: 15%; 
20% to 29%: 20%; 
30% to 39%: 18%; 
40% to 49%: 16%; 
50% to 59%: 11%; 
60% or more: 8%. 

Nonenterprise prime loans (exclude government-guaranteed loans) 
(Observations: 4,448): 

Predicted default rate: 12%. 

Predicted default rate with Monthly payment reduction: 
Less than 10%: 13%; 
10% to 19%: 19%; 
20% to 29%: 24%; 
30% to 39%: 17%; 
40% to 49%: 14%; 
50% to 59%: 8%; 
60% or more: 5%. 

Subprime loans (exclude government-guaranteed loans) (Observations: 
11,470): 

Predicted default rate: 17%. 

Predicted default rate with Monthly payment reduction: 
Less than 10%: 17%; 
10% to 19%: 22%; 
20% to 29%: 22%; 
30% to 39%: 14%; 
40% to 49%: 11%; 
50% to 59%: 7%; 
60% or more: 7%. 

FHA loans (Observations: 9,939): 

Predicted default rate: 22%. 

Predicted default rate with Monthly payment reduction: 
Less than 10%: 45%; 
10% to 19%: 40%; 
20% to 29%: 11%; 
30% to 39%: 3%; 
40% to 49%: 1%; 
50% to 59%: 0%; 
60% or more: 0%. 

VA loans (Observations: 921): 

Predicted default rate: 15%. 

Predicted default rate with Monthly payment reduction: 
Less than 10%: 39%; 
10% to 19%: 42%; 
20% to 29%: 14%; 
30% to 39%: 3%; 
40% to 49%: 1%; 
50% to 59%: 0%; 
60% or more: 0%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[End of figure] 

According to our analysis of CoreLogic data, modifications resulting 
in payment reductions can involve one action or a combination of 
actions, such as lowering the interest rate, reducing the loan balance 
(through forgiving or forbearing principal), capitalizing past due 
amounts, and extending the term of the loan. Some of these actions 
were much more commonly used than others--for example, interest rate 
reductions and capitalization were used far more frequently than 
reducing the loan balance (see figure 11). Further, our analysis 
indicated that the predicted 6-month redefault rates could differ 
depending on the action used. Modifications that included balance 
reductions had a redefault rate of 11 percent, while modifications 
that included a rate reduction, capitalization, or term extension had 
redefault rates of 15, 16, and 18 percent, respectively. Our analysis 
of HAMP data indicated that the baseline 12-month redefault rate for 
all modified loans was 15 percent. Among HAMP loans that received 
principal forbearance, the rate was slightly lower--12 percent. 
However, the rate for HAMP loans that received principal forgiveness 
was even lower--8 percent. See appendix V for a detailed description 
of the relationship between the modification action type and loan 
performance. 

Figure 11: Volume of Modification Actions and Predicted 6-Month 
Redefault Rates of Loans Modified by Modification Type, January 2009 
through December 2010: 

[Refer to PDF for image: illustrated table] 

Proportion of loans with this action: 
Rate reduction: 96%; 
Balance reduction: 5%; 
Capitalization: 83%; 
Term extension: 37%. 

Predicted redefault rate: 
Rate reduction: 15%; 
Balance reduction: 11%; 
Capitalization: 16%; 
Term extension: 18%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics.    

Note: Modifications can involve one action or a combination of actions. 

[End of figure] 

Further, loan modifications for borrowers with significant negative 
equity (LTV of 125 percent or higher) can be as effective as 
modifications for borrowers with equity in their home. For example, 
the lowest redefault rates for both borrowers with significant 
negative equity and borrowers with LTV less than 95 percent are 
achieved with payment reductions of 40 to 49 percent (see fig 12). 

Figure 12: Redefault Rate by Percentage of Monthly Payment Reduction 
for Loans Modified by Selected LTV Categories, January 2009 through 
December 2010: 

[Refer to PDF for image: multiple line graph] 

Percentage decrease in monthly payments: Less than 10%; 
LTV 125% or higher: 25%; 
All loans: 20%; 
LTV 10 to 94%: 16%. 

Percentage decrease in monthly payments: 10% - 19%; 
LTV 125% or higher: 20%; 
All loans: 17%; 
LTV 10 to 94%: 14%. 

Percentage decrease in monthly payments: 20% - 29%; 
LTV 125% or higher: 19%; 
All loans: 16%; 
LTV 10 to 94%: 14%. 

Percentage decrease in monthly payments: 30% - 39%; 
LTV 125% or higher: 16%; 
All loans: 14%; 
LTV 10 to 94%: 12%. 

Percentage decrease in monthly payments: 40% - 49%; 
LTV 125% or higher: 13%; 
All loans: 12%; 
LTV 10 to 94%: 9%. 

Percentage decrease in monthly payments: 50% - 59%; 
LTV 125% or higher: 14%; 
All loans: 13%; 
LTV 10 to 94%: 11%. 

Percentage decrease in monthly payments: 60% or more; 
LTV 125% or higher: 13%; 
All loans: 13%; 
LTV 10 to 94%: 11%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[End of figure] 

We also found that certain borrower and loan characteristics affected 
redefault rates. For instance, borrowers who were the most delinquent 
at the time of modification had higher redefault rates than less 
delinquent or current borrowers. Borrowers who were delinquent 90 days 
or more had a redefault rate of 17 percent, and those already in 
foreclosure had a redefault rate of 19 percent. But the rate for 
borrowers who had been delinquent for less than 60 days was 9 percent. 
Furthermore, modified loans with certain characteristics were more 
likely to redefault: loans in areas where the unemployment rate had 
increased since modification, loans receiving higher interest rates at 
modification, or loans that were originated with adjustable rather 
than fixed rates.[Footnote 90] 

Generally, federal agencies are responsible for helping ensure that 
loss mitigation programs reduce taxpayers' costs. For example, FHA 
requires and USDA encourages servicers to use foreclosure mitigation 
actions to minimize losses from loans going to foreclosure. Similarly, 
one of the core values of VA is to be a good steward of financial 
resources that taxpayers provide to the agency. In addition, in 
estimating costs of loan guarantee programs, agencies are required to 
consider the long-term costs of the loan guarantee on a net present 
value basis. Long-term costs include payments by the government to 
cover defaults and delinquencies, among other things. Further, 
according to the Office of Management and Budget loss mitigation 
actions should be used only if they are likely to be less expensive 
than the cost of default or foreclosure. And, as noted earlier, both 
the Treasury and the enterprises analyze the performance of modified 
loans and consider loan and borrower characteristics to better 
understand the long-term costs of various loan modification actions. 
Finally, as we previously reported, agencies could use performance 
information to identify problems, take corrective action, and improve 
programs.[Footnote 91] Evaluating the costs of various loan 
modification actions enables agencies to more effectively weigh the 
tradeoffs between helping borrowers keep their homes and protecting 
taxpayers' interests. 

FHA officials stated that they considered loan performance and long-
term costs in the initial design of the program in 1996. However, FHA 
has not updated its analysis of loan performance and long-term costs 
since this time to reflect changes to its loss and foreclosure 
mitigation activities--including the introduction of FHA-HAMP--or the 
housing market. In addition, FHA officials told us that they had not 
assessed the extent to which individual servicers considered long-term 
costs in making decisions about offering loss and foreclosure 
mitigation options to borrowers.[Footnote 92] Recently, FHA began to 
require trial modification payment periods for certain foreclosure 
mitigation actions. FHA expects this will reduce redefault rates. 

FHA has recently begun to calculate redefault rates for specific home 
retention actions and plans to examine these data in the future. FHA 
officials stated that they regularly monitor redefault rates of 
delinquent loans as part of their oversight of servicer activities. 
For example, FHA set an annual performance goal beginning in fiscal 
year 2010 for its combined home retention actions and has used the 
results of this monitoring to provide oversight and training to 
servicers to reduce redefault rates. However, this goal is for the 
actions in the aggregate and does not take into account individual 
actions, such as FHA's standard loan modification and the FHA-HAMP 
modification. Further, FHA has not used this information to analyze 
the effectiveness of its programs. Recently, FHA began to calculate 
redefault rates for specific home retention actions and plans to 
continue to calculate and examine these data in the future. 

FHA currently collects limited data on loan and borrower 
characteristics at the time of a foreclosure mitigation action. FHA 
collects information such as delinquency status and the amount of the 
new principal and interest payment for some modified loans.[Footnote 
93] However, it does not currently collect other key information on 
borrowers--such as borrower income and expenses at the time of 
foreclosure mitigation action. Analyses of the characteristics of 
modified loans and their borrowers could help in adjusting loss 
mitigation policies. Further, this information could be used to help 
identify which foreclosure mitigation action would be most appropriate 
for a borrower. According to FHA officials, servicers are required to 
provide only minimal data on loan and borrower characteristics at the 
time of a foreclosure mitigation action, as the responsibility for 
determining eligibility for loss mitigation activities rests with the 
servicer and not FHA.[Footnote 94] In October 2011, a contractor began 
work to assess FHA's oversight of servicers' loss mitigation 
activities. The assessment identified loan and borrower 
characteristics commonly collected within the industry, which include 
current LTV as well as information needed to calculate the change in 
monthly payment, among other things. The assessment concluded that FHA 
should collect additional loan-level data from servicers to enable FHA 
to analyze the performance of modified loans. 

FHA is considering changes to its current approach that may facilitate 
the analysis of long-term costs. In December 2010, a team of 
consultants assisting the agency to establish the Office of Risk 
Management advised FHA to use an NPV model to help identify 
appropriate loss mitigation options and maximize the economics of 
modifications. In March 2012, FHA indicated that it planned to develop 
a loss model to inform its loss mitigation approach. The use of a loss 
model would help the agency better understand its programs' long-term 
costs. FHA officials told us that they planned to reassess the 
sequence of their foreclosure mitigation actions, including the point 
at which borrowers would be evaluated for an FHA-HAMP loan 
modification.[Footnote 95] However, as of April 2012, FHA had not 
decided to use an NPV model. FHA officials raised concerns about using 
an NPV approach. Specifically, they noted that FHA policy requires 
servicers to work with all delinquent borrowers to find long-term 
solutions that, if possible, permit the borrower to retain 
homeownership. Further, FHA does not use results from analyses to 
provide the basis for not offering assistance to struggling 
homeowners. Incorporating an NPV model into FHA's foreclosure 
mitigation toolkit would not preclude servicers from working with all 
delinquent borrowers or offering assistance. Instead, it would likely 
provide greater clarity about the predicted economic outcome of 
specific foreclosure mitigation actions and would help servicers 
better prevent avoidable foreclosures. Further, incorporating an NPV 
model would help balance the tradeoffs between assisting borrowers to 
keep their homes and helping ensure the lowest cost to the taxpayer. 

VA also has not incorporated analyses of long-term costs into its loss 
mitigation programs. Although VA collects some information about the 
performance of modified loans and modified loan characteristics, it 
does not currently analyze its portfolio to understand differences in 
performance based on type of loss mitigation actions or for loan and 
borrower characteristics.[Footnote 96] The agency also does not 
currently evaluate data servicers provide on loan performance and 
other loss mitigation actions to determine redefault rates and has not 
used the information servicers report on loan and borrower 
characteristics to determine the optimal change in monthly payment 
amounts for future modifications. Finally, VA requires servicers to 
collect data on borrowers' income and expenses but not to report the 
data to the agency. According to VA officials, VA monitors the 
effectiveness of its loss mitigation activities on a case-by-case 
basis by assigning a VA loan technician to oversee situations that 
cannot be resolved and work directly with the borrower, if required. 

Finally, USDA has not incorporated analyses of long-term costs into 
its foreclosure mitigation program, which is designed to have the 
least upfront cost to the government. As a result, USDA does not 
require servicers to consider long-term costs in determining which 
mitigation options to offer borrowers. It collects loan-level data 
from servicers on loan performance and type of action taken. Further, 
when servicers submit a request to provide a loss mitigation action to 
a borrower, they provide data on certain loan and borrower 
characteristics, including the monthly payment amount after the 
action, verified income and expenses, and the property value (which 
could be used to calculate LTV). However, USDA has not analyzed these 
data, in part because the data are provided through two different 
reporting systems and would have to be matched in order to be 
useful.[Footnote 97] Although the agency had not previously tried to 
match data, USDA officials said that it would be possible to match 
data on individual borrowers. Further, USDA officials stated that 
their loss mitigation data collection systems were outdated and noted 
that the agency had plans to update them to allow the agency to more 
systematically capture data on their loss mitigation activities. 
However, USDA officials were uncertain of the timetable or 
availability of funding to implement these changes. 

Because FHA does not analyze the performance of loss mitigation 
activities by loan and borrower characteristics and VA and USDA do not 
analyze the performance of these activities by type of home retention 
action or loan and borrower characteristics, these agencies have a 
limited understanding of the ultimate costs of their loss mitigation 
programs. As a result, their loss mitigation activities may not be 
effectively balancing the tradeoffs between assisting borrowers to 
keep their homes and helping ensure the lowest cost to the taxpayer. 
If these agencies better understood the performance and ultimate costs 
of each home retention action, they could, for example, decide that it 
was in their best financial interest, as well as the borrowers, to 
change the order in which their loss mitigation options were offered 
or to adjust their eligibility requirements. And by collecting 
additional data and conducting more comprehensive analyses, they could 
better inform decision makers, helping them to ensure that federal 
foreclosure mitigation programs are as effective as possible and, at 
the same time, limiting long-term costs. Such efforts would be key to 
helping address the ongoing problems of the housing market, including 
the high volume of seriously delinquent loans that face an elevated 
risk of foreclosure. 

Some Evidence Suggests That Principal Forgiveness Could Be an 
Effective Foreclosure Mitigation Action in Certain Circumstances, but 
Experience with This Tool Is Limited: 

To date, principal forgiveness as a method of addressing defaults and 
foreclosures among borrowers that have significant negative equity has 
played a limited role in foreclosure mitigation efforts. Principal 
forgiveness involves reducing the amount the borrower owes on a 
mortgage without requiring that the amount of the reduction be repaid. 
As a result, this action not only lowers the borrower's monthly 
mortgage payment but allows underwater borrowers the opportunity to 
rebuild equity in their homes more quickly. Our analysis found that, 
although the redefault rate for the loans that received principal 
forgiveness was lower than the overall pools of modified loans, the 
effects of changing the amount of principal forgiven on loan 
performance were inconclusive. However, private investors and lenders 
that hold loans in their portfolio have used principal forgiveness, 
suggesting that this foreclosure mitigation tool may be effective in 
certain circumstances. 

Between 2009 and 2011, the prevalence of principal forgiveness among 
modified loans ranged from about 3 to 13 percent, and averaged about 6 
percent (see figure 13). During the fourth quarter of 2011, about 9 
percent (9,867) of modifications included principal forgiveness--up 
from about 3 percent during the first quarter of 2011, according to 
OCC.[Footnote 98] In contrast, more than three-quarters of all 
modifications during the fourth quarter of 2011 included 
capitalization or rate reduction, more than half received a term 
extension, and almost a quarter of modifications included principal 
forbearance.[Footnote 99] Principal forgiveness was more prevalent 
among HAMP modifications (about 16 percent) than among all 
modifications (about 9 percent). At the same time, OCC data indicated 
that the prevalence of principal forgiveness varied by market segment 
and investor. Specifically, principal forgiveness was more prevalent 
among subprime loans (about 13 percent) than prime loans (7 percent). 
Further, principal forgiveness was used primarily for loans held in 
portfolio or serviced for private investors. FHFA does not permit the 
enterprises to use principal forgiveness as a loan modification 
action. HUD, USDA, and VA are not authorized to support principal 
forgiveness.[Footnote 100] 

Figure 13: Volume of Modifications with Principal Forgiveness Actions, 
2009 through 2011: 

[Refer to PDF for image: combination vertical bar and line graph] 

Date: 2009, Q1; 
Number of loans: 5,834; 
Percentage of modifications: 3.1%. 

Date: 2009, Q2; 
Number of loans: 14,195; 
Percentage of modifications: 10%. 

Date: 2009, Q3; 
Number of loans: 17,412; 
Percentage of modifications: 13.2%. 

Date: 2009, Q4; 
Number of loans: 8,435; 
Percentage of modifications: 6.8%. 

Date: 2010, Q1; 
Number of loans: 4,464; 
Percentage of modifications: 1.9%. 

Date: 2010, Q2; 
Number of loans: 5,866; 
Percentage of modifications: 2.2%. 

Date: 2010, Q3; 
Number of loans: 13,399; 
Percentage of modifications: 5.7%. 

Date: 2010, Q4; 
Number of loans: 5,696; 
Percentage of modifications: 2.7%. 

Date: 2011, Q1; 
Number of loans: 4,826; 
Percentage of modifications: 3%. 

Date: 2011, Q2; 
Number of loans: 9,401; 
Percentage of modifications: 6.3%. 

Date: 2011, Q3; 
Number of loans: 11,183; 
Percentage of modifications: 8.1%. 

Date: 2011, Q4; 
Number of loans: 9,867; 
Percentage of modifications: 8.5%. 

Source: OCC Mortgage Metrics reports. 

[End of figure] 

Our analysis of Treasury data for the HAMP program (including Fannie 
Mae and Freddie Mac loans) found that the 12-month redefault rate for 
loans that received principal forgiveness was 8 percent, while the 
rate for loans receiving principal forbearance was 12 percent. 
[Footnote 101] Both of these figures are lower than the overall 
redefault rate for all HAMP loans, which was 15 percent. Our analysis 
of HAMP data, when controlling for observable borrower and loan 
characteristics, found that the effect of principal forgiveness on the 
redefault rate was inconclusive.[Footnote 102] However, larger balance 
reductions through principal forbearance were found to lower the 
redefault rate. The inconclusive results are likely attributable to 
the fact that principal forgiveness has been used sparingly. While 
principal forgiveness has always been allowed under HAMP, Treasury did 
not start offering incentives to investors to forgive principal until 
October 2010. Since few HAMP modifications have incorporated principal 
forgiveness, our ability to fully examine the impact of this action on 
redefault rates was limited. For the CoreLogic data, we analyzed the 
performance of loans that received a balance reduction, either through 
principal forgiveness or principal forbearance, and found that loans 
that received a balance reduction were less likely to redefault. 
[Footnote 103] Specifically, the overall 12-month redefault rate of 
modified loans (loans comparable to HAMP loans) was 26 percent. In 
contrast, the redefault rate of loans that received a balance 
reduction was 15 percent.[Footnote 104] 

Treasury has taken recent action to further encourage servicers to use 
principal forgiveness. As discussed earlier, since October 2010 
Treasury has required servicers to evaluate severely underwater HAMP 
applicants for its Principal Reduction Alternative, which provides 
investors in nonenterprise loans with incentive payments when 
forgiving principal as part of a HAMP modification. In January 2012, 
Treasury announced that HAMP would be modified to further encourage 
investors to offer principal reductions by increasing the incentives 
payments. In the past, investors received between 10 and 21 cents on 
the dollar to write down principal on loans. As of March 2012, 
Treasury began paying 30 to 63 cents on the dollar.[Footnote 105] 

FHFA, the conservator and regulator of Fannie Mae and Freddie Mac, has 
not allowed them to use their own funds to offer principal 
forgiveness. FHFA has argued that it has a statutory responsibility to 
preserve and conserve the assets and property of the regulated 
entities. At the same time, FHFA noted that it has a statutory 
responsibility to maximize assistance for homeowners to minimize 
foreclosures while taking into consideration the cost to taxpayers of 
any action undertaken. FHFA performed an initial analysis comparing 
the effectiveness of principal forbearance to principal forgiveness as 
a loan modification tool in December 2010 and updated it in June and 
December 2011 using Treasury's HAMP Net Present Value (NPV) model. The 
agency concluded that although both forgiveness and forbearance reduce 
the borrower's payment to the same affordable level, forbearance 
achieves marginally lower losses for the taxpayer than forgiveness. 
[Footnote 106] These analyses have provided the basis for FHFA's 
current policy decision to not permit the enterprises' use of 
principal forgiveness. However, some housing market observers have 
been critical of FHFA's approach to evaluating the utility of 
principal forgiveness. For example, one industry observer noted that 
FHFA's analysis assessed the costs of writing down all loans in the 
enterprises' portfolios with negative equity instead of the 
possibility of using principal forgiveness for some borrowers and a 
forbearance strategy for others based on the borrowers' and loans' 
characteristics. For example, one Treasury official has been quoted as 
stating that principal forgiveness may have the best result for 
borrowers above 120 LTV ratios that can prove some type of hardship. 
Other concerns raised by industry observers included FHFA's use of 
information obtained at loan origination rather than current data 
(i.e., Fair Isaac Corporation (FICO) credit scores, income, etc.) and 
not following HAMP modification rules for the extent of the monthly 
payment reduction, which require a 31 percent debt-to-income target 
rather than a prescribed LTV reduction. 

In January 2012, Treasury announced that it would pay incentives to 
the enterprises if FHFA allowed servicers to forgive principal as part 
of Fannie Mae and Freddie Mac HAMP modifications, a change that could 
significantly alter FHFA's position. Shortly after Treasury's 
announcement, FHFA began to conduct analyses to reevaluate the use of 
principal forgiveness as a foreclosure mitigation tool. FHFA updated 
its earlier analyses by incorporating the impact of receiving 
incentive payments from Treasury and altered its analyses to address 
some of the critiques made of its previous approach. Specifically, 
FHFA indicated that it made adjustments to the loan origination data 
to better reflect likely changes in borrowers' FICO scores and housing 
payment debt-to-income ratios, and used zip code as opposed to state-
level indices to more accurately identify high LTV borrowers. In 
addition, FHFA officials told us that they used a 31 percent debt-to-
income target in their updated analyses. According to FHFA officials, 
they also modified their current analysis to fully consider HAMP and 
HAMP PRA modification rules. FHFA officials told us that they believed 
that this change addressed the critique about using a mutually 
exclusive approach of using principal forgiveness versus forbearance 
for all loans with negative equity. 

As of June 2012, FHFA had not made a final decision on allowing the 
enterprises to engage in HAMP principal forgiveness modifications. 
According to FHFA, its preliminary analysis, as of April 2012, showed 
a positive benefit of $1.7 billion to the enterprises of accepting 
$3.8 billion in Treasury incentive payments for performing loan 
modifications involving principal forgiveness. Further, FHFA noted any 
savings, from the perspective of the federal government, would be 
negligible due to the draw on the Treasury. However, all TARP-funded 
housing programs are expenditures, including incentives paid to the 
nonenterprise investors, servicers, and borrowers. Further, the 
payment of incentives to the enterprises for principal forgiveness 
modifications would be paid out of the $45.6 billion that Treasury has 
already obligated to be used for preventing avoidable foreclosures and 
preserving homeownership. FHFA's estimate was based on the nearly 
700,000 loans in Fannie Mae's and Freddie Mac's portfolios considered 
to be eligible for a HAMP loan modification that were severely 
underwater (current LTV greater than 115) as of June 30, 2011, and 
were either already in delinquency status or loans that could become 
delinquent within 6 months.[Footnote 107] According to FHFA, the 
actual number of borrowers who would receive principal forgiveness 
would likely be lower due to other eligibility requirements and 
because eligible borrowers may choose not to participate. 
Additionally, FHFA noted that HAMP principal forgiveness modifications 
would not expand the number of borrowers who are eligible to obtain 
modifications under HAMP because the eligibility requirements are the 
same. 

Separately, the enterprises assessed the feasibility of principal 
forgiveness, but their analyses focused on different issues and 
produced different results. Before Treasury announced that it would 
pay incentives to the enterprises, Fannie Mae assessed the affect of 
principal forgiveness on loan modifications through two small pilot 
programs, but found that the pilots did not provide any indication 
that performance varied between modifications with and without 
principal forgiveness. However, Fannie Mae analysis did not address 
the financial impact to the enterprise of receiving Treasury HAMP PRA 
incentive payments. Freddie Mac prepared estimates of the savings that 
principal forgiveness might provide using the HAMP NPV model by 
assuming principal forgiveness to a 105 percent LTV. Given the 
underlying assumptions, it found that for 100,000 borrowers, the 
inclusion of the recently proposed Treasury incentive payments could 
offset losses to the enterprises by approximately $480 million as 
opposed to performing a loan modification without subsidies from 
Treasury. 

Aside from the direct financial impact to the enterprises of receiving 
incentive payments for participating in HAMP's PRA , FHFA and the 
enterprises have raised concerns about borrowers strategically 
defaulting to become eligible for principal forgiveness--moral hazard--
as well as the additional costs and time this approach would require. 
Nonetheless, there remain techniques for mitigating its impact on 
borrower behavior, most notably requiring that the borrower already be 
in default and prove a financial hardship. All three entities also 
pointed to the costs for developing information systems and the time 
it would take the enterprises and its servicers to implement principal 
forgiveness. For example, according to Fannie Mae officials, these 
costs could be as high as tens of millions of dollars and could 
require up to 22 to 24 months. FHFA noted that it was still evaluating 
the direct operational costs associated with adopting principal 
forgiveness under HAMP and that those costs were not trivial. However, 
FHFA has not indicated whether those direct costs are likely to be 
greater than the $1.7 billion in financial benefits that it determined 
would likely accrue to the enterprises from receiving Treasury HAMP 
PRA incentive payments. Moreover, as noted by FHFA, the anticipated 
benefit of principal forgiveness is that, by reducing foreclosures 
relative to other modification types, losses to the enterprises would 
be lowered and house prices would stabilize faster, thereby producing 
broader benefits to all market participants. 

Conclusions: 

Despite the unprecedented scale of federal and nonfederal efforts to 
help borrowers facing potential foreclosure, key indicators suggest 
that the U.S. housing market remains weak and that high foreclosure 
levels will likely persist in the foreseeable future. While these 
efforts resulted in more than 4 million loan modifications between 
January 2009 and December 2011, the volume of modifications has 
declined since 2010 and millions of borrowers have sought but have 
been unable to receive a permanent modification. Specifically, our 
analysis of mortgage data showed that 1.9-3 million loans still had 
characteristics associated with an increased likelihood of 
foreclosure, such as serious delinquency and significant negative 
equity (LTV ratio of 125 or higher), as of June 2011. Further, 
Treasury estimated that there were 900,000 borrowers who were 
seriously delinquent and potentially eligible for its HAMP 
modification program as of December 31, 2011. Another almost 2 million 
FHA, Fannie Mae, and Freddie Mac loans also were seriously delinquent. 
In addition, indicators such as home prices and home equity remain 
near their postbubble lows. And finally, as of December 2011, total 
U.S. household mortgage debt was $3.7 trillion greater than 
households' equity in their homes. 

Despite their efforts, neither federal agencies nor nonfederal 
entities have been able to come up with a clear path for resolving the 
foreclosure crisis. A number of factors have hindered foreclosure 
mitigation efforts, including competing priorities (e.g., balancing 
short-term versus long-term costs, mitigating moral hazard) and 
ongoing developments, such as declining house values, and a high 
unemployment rate. Ultimately, what will likely be required will be a 
variety of approaches aimed at removing various obstacles to existing 
foreclosure mitigation strategies. Comprehensive data-gathering and 
analysis will also be needed to help ensure that federal foreclosure 
mitigation programs are effective and also limit fiscal costs and the 
potential for negative long-term consequences from government 
intervention. 

Our analysis found that several agencies and the enterprises could do 
more to better manage the costs associated with foreclose mitigation 
efforts and step up their efforts to reach and help borrowers, 
specifically the following, 

* Treasury has not reassessed its need for the letter of credit on 
FHA's Short Refinance program, which will not likely reach the number 
of borrowers that it initially estimated it would help. For this 
reason, Treasury may not need to maintain an $8 billion letter of 
credit for the program and thus may be able to cut costs by reducing 
or eliminating the fees associated with the letter. 

* One of the key findings of our econometric analysis of the CoreLogic 
and HAMP loan-level data was that loan modifications should be made 
before borrowers become seriously delinquent on their mortgage 
payments in order to obtain the best results. Although USDA requires 
servicers to attempt to work with borrowers before they become 
seriously delinquent, USDA does not collect information from servicers 
about these efforts. Moreover, its monitoring and data collection to 
ensure that servicers are complying with its requirements to reach 
distressed borrowers before they become seriously delinquent are 
limited. Collecting and analyzing data would provide USDA with a more 
complete picture of how well servicers are reaching distressed 
borrowers and preventing avoidable foreclosures. 

* FHA, VA, and USDA have not fully analyzed the costs and benefits of 
their foreclosure mitigation actions to help ensure that both 
borrowers and taxpayers benefit from efforts to keep homeowners in 
their homes. Although FHA has begun to calculate redefault rates for 
specific home retention actions, it has not used this information to 
assess the effectiveness of its foreclosure mitigation efforts. Doing 
so is particularly important since FHA loan modifications typically do 
not reduce borrower's monthly payments to the levels that our analysis 
indicated result in more sustainable modifications. Further, VA and 
USDA do not routinely calculate redefault rates for specific types of 
home retention actions--such as their various loan modification 
programs--although additional efforts to calculate this performance 
data would provide these agencies with better information to manage 
their foreclosure mitigation efforts. In addition, our analysis of the 
performance of loans identified key loan and borrower characteristics 
that reduced the likelihood of redefault. Specifically, we found that 
the size of payment change as well as the current LTV and delinquency 
status at the time of modification greatly influenced the success of a 
loan modification. However, FHA, VA, and USDA have not assessed the 
impact of loan and borrower characteristics on the performance of 
their foreclosure mitigation efforts. In some cases, these agencies do 
not have the data needed to conduct these analyses. In contrast, 
Treasury and the enterprises routinely calculate and evaluate this 
performance information. For example, the enterprises based recent 
changes to their non-HAMP loan modification programs on their analysis 
of the size of monthly payment reductions on redefault rates. Without 
these types of analysis and data, FHA, VA and USDA cannot, on a 
regular basis, evaluate the merits of the different home retention 
actions and use the information to identify opportunities to improve 
program performance. 

Finally, several federal agencies and the enterprises continue to make 
changes and enhancements to their foreclosure mitigation efforts to 
assist borrowers struggling to avoid foreclosure. For example, 
Treasury recently announced a number of changes to HAMP to increase 
the number of borrowers helped by the program, including targeting 
efforts to help underwater borrowers by tripling the incentives paid 
to investors for principal forgiveness and offering incentive payments 
to the enterprises for loan modifications that include principal 
forgiveness. In response, FHFA is currently reevaluating its 
prohibition against the use of Fannie Mae and Freddie Mac funds for 
principal forgiveness. Although permitting the enterprises to offer 
principal forgiveness would not expand the numbers of borrowers 
eligible for a HAMP modification, FHFA's preliminary analysis 
indicated that the Treasury incentive payments would result in a 
positive benefit to the enterprises of $1.7 billion as opposed to 
performing traditional HAMP modifications for severely underwater 
borrowers. FHFA and the enterprises have noted that there would be 
various costs associated with adopting a principal forgiveness program 
that have not yet been fully determined, thus, delaying a decision on 
whether the enterprises will engage in principal forgiveness. Given 
the December 31, 2013, deadline for entry into a HAMP permanent loan 
modification and the lead time required for the enterprises to 
implement a principal forgiveness program, it is critical that FHFA 
take the steps needed to expeditiously make a decision about allowing 
the enterprises to engage in HAMP principal forgiveness modifications. 
As estimated by FHFA, nearly 700,000 severely underwater borrowers 
could potentially be eligible if the enterprises were to offer HAMP 
modifications with principal forgiveness. 

As the enhanced efforts pick up speed, it may be possible to identify 
further enhancements that would help both struggling homeowners and 
the overall economy. However, the ability of federal agencies and the 
enterprises to make such determinations is unclear, unless they 
collect and analyze the data needed to demonstrate the success and 
cost-effectiveness of individual actions. This information can help 
program managers and policymakers decide what further steps, if any, 
to take in their efforts to mitigate the foreclosure crisis. 

Recommendations: 

To help ensure Treasury is making effective and efficient use of its 
resources, Treasury and FHA should update their estimates of 
participation in the FHA Short Refinance program given current 
participation rates and recent changes to the program. Treasury should 
then use these updated estimates to reassess the terms of the letter 
of credit facility and consider seeking modifications in order to help 
ensure that it meets Treasury's needs cost-effectively. 

In order to better ensure that servicers are effectively implementing 
the agency's loss mitigation programs and that distressed borrowers 
are receiving the assistance they need as early as possible before 
they become seriously delinquent, we recommend that the Secretary of 
the Department of Agriculture require servicers to report information 
about their efforts to reach distressed borrowers. For example, 
servicers could report on their efforts to reach borrowers and whether 
borrowers have responded to outreach from the servicer regarding early 
delinquency interventions and are receiving informal foreclosure 
mitigation actions. Further, the Secretary of USDA should determine 
the extent to which distressed borrowers have not been reached and 
assess whether changes are needed to help ensure servicers are 
complying with USDA's loss mitigation requirements. 

To more fully understand the strengths and risks posed by foreclosure 
mitigation actions and protect taxpayers from absorbing avoidable 
losses to the maximum extent possible, we recommend that FHA, VA, and 
USDA conduct periodic analyses of the effectiveness and the long-term 
costs and benefits of their loss mitigation strategies and actions. 
These analyses should consider (1) the redefault rates associated with 
each type of home retention action and (2) the impact that loan and 
borrower characteristics have on the performance of different home 
retention actions. The agencies should use the results from these 
analyses to reevaluate their loss mitigation approach and provide 
additional guidance to servicers to effectively target foreclosure 
mitigation actions. If FHA, VA, and USDA do not maintain data needed 
to consider this information, they should require services to provide 
them. 

We recommend that FHFA expeditiously finalize its analysis as to 
whether Fannie Mae and Freddie Mac will be allowed to offer HAMP 
principal forgiveness modifications. 

Agency Comments and Our Evaluation: 

We requested comments on a draft of this report from Treasury, HUD, 
USDA, VA, FHFA, Fannie Mae, Freddie Mac, OCC, Federal Reserve, FDIC, 
and the Consumer Financial Protection Bureau (CFPB). We received 
formal written comment letters from Treasury's Assistant Secretary for 
Financial Stability, HUD's Acting Assistant Secretary for Housing 
(Federal Housing Commissioner), VA's Chief of Staff, and FHFA's Senior 
Associate Director of the Office of Housing and Regulatory Policy; 
these are presented in appendixes VI through IX. We also received e-
mail comments from USDA that are discussed below. Lastly, we received 
technical comments from Treasury, HUD, FHFA, Fannie Mae, Freddie Mac 
and FDIC that are incorporated as appropriate in the report. OCC, the 
Federal Reserve, and CFPB did not provide any comments on the draft 
report. 

Treasury, HUD, VA, and FHFA each agreed to consider or concurred with 
the recommendations and indicated that action was either under way or 
planned in response to our recommendations. In its written comments, 
FHFA noted that savings to the federal government would likely be 
negligible if the enterprises offered modifications under the HAMP 
Principal Reduction Alternative because of the incentive payments 
Treasury would have to provide. In response, we added additional 
information to the report noting, as we have in prior reports, that 
all TARP-funded housing programs are expenditures, including 
incentives paid to investors other than the enterprises, servicers, 
and borrowers. Further, incentives to the enterprises for principal 
forgiveness modifications would be paid out of the $45.6 billion that 
Treasury has already obligated for preventing avoidable foreclosures 
and preserving homeownership. FHFA also noted that the draft report 
did not discuss the issue of principal forgiveness modifications with 
respect to FHA, USDA, and VA. We included additional text in the 
report to note that FHA, USDA, and VA each cited limitations related 
to their authority to forgive loan principal as part of a foreclosure 
mitigation action. Moreover, as the draft report notes, FHA, VA, and 
USDA have not fully analyzed the costs and benefits of their 
foreclosure mitigation actions to help ensure that both borrowers and 
taxpayers benefit from efforts to keep homeowners in their homes. 
Therefore, we recommended that these agencies analyze the 
effectiveness and the long-term costs and benefits of their loss 
mitigation strategies and actions. 

Although USDA did not provide a formal written comment letter, e-mail 
comments from Rural Development noted that USDA generally concurred 
with the information applicable to USDA in the report. Further, USDA 
provided additional data on the types of information that servicers 
were required to report on their foreclosure mitigation efforts. In 
response, we clarified the text of the report and the associated 
recommendation to provide additional examples of data that would 
enhance USDA's ability to monitor servicers' borrower outreach and 
foreclosure mitigation efforts. 

We are sending copies of this report to interested congressional 
committees, Treasury, HUD, USDA, VA, FHFA, Fannie Mae, Freddie Mac, 
OCC, Federal Reserve, FDIC, CFPB, Special Inspector General for TARP, 
and members of the Financial Stability Oversight Board. We also will 
make this report available at no charge on the GAO website at 
[hyperlink, http://www.gao.gov]. 

If you or your office have any questions about this report, please 
contact me at (202) 512-8678 or sciremj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Key contributors to this report are 
listed in appendix VII. 

Signed by: 

Mathew J. Scirè: 
Director: 
Financial Markets and Community Investment: 

List of Addressees: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Thad Cochran: 
Vice Chairman: 
Committee on Appropriations: 
United States Senate: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Richard C. Shelby: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Kent Conrad: 
Chairman: 
The Honorable Jeff Sessions: 
Ranking Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Hal Rogers: 
Chairman: 
The Honorable Norm Dicks: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Paul Ryan: 
Chairman: 
The Honorable Chris Van Hollen: 
Ranking Member: 
Committee on the Budge:t 
House of Representatives: 

The Honorable Spencer Bachus: 
Chairman: 
The Honorable Barney Frank: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sandy Levin: 
Ranking Member: 
Committee on Ways and Means: 
House of Representative: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report focuses on foreclosure mitigation efforts. Specifically, 
this report examines (1) the federal and nonfederal response to the 
housing crisis, (2) the number of loans potentially at risk of 
foreclosure and the current condition of the U.S. housing market, and 
(3) opportunities to enhance the effectiveness of current foreclosure 
mitigation efforts. 

To examine the response to the housing crisis, we identified key 
federal and nonfederal efforts to mitigate foreclosures, focusing our 
review on those that provided direct assistance to homeowners: 

* Department of the Treasury's efforts, including the Home Affordable 
Modification Program (HAMP), HAMP-Principal Reduction Alternative 
(PRA), Federal Housing Administration Refinance of Borrowers in 
Negative Equity Positions (FHA Short Refinance, joint program with the 
Department of Housing and Urban Development (HUD)), Home Affordable 
Unemployment Program (UP), and Home Affordable Foreclosure 
Alternatives (HAFA) Program. 

* HUD's efforts, mainly through FHA, including special forbearance 
agreements, standard modifications, FHA-HAMP, FHA Short Refinance 
(joint program with Treasury), partial claims short sales, and deeds-
in-lieu of foreclosure. 

* Department of Agriculture's (USDA) efforts, including special 
forbearance, traditional modifications, special loan servicing, short 
sales, and deeds-in-lieu of foreclosure. 

* Department of Veterans Affairs' (VA) programs, including repayment 
plans, special forbearance agreements, standard modifications, VA-
HAMP, short sales, and deeds-in-lieu of foreclosure. 

* Efforts of the Federal National Mortgage Association (Fannie Mae) 
and the Federal Home Loan Mortgage Corporation (Freddie Mac), 
including repayment plans, forbearance agreements, standard loan 
modification programs, Home Affordable Refinance Program (HARP), short 
sales, and deeds-in-lieu of foreclosure. 

* Efforts implemented by states but supported by federal funds, such 
as Treasury's Housing Finance Agency Innovation Fund for the Hardest 
Hit Housing Markets (Hardest Hit Fund) and HUD's Emergency Homeowners 
Loan Program (EHLP). 

* Efforts implemented by mortgage servicers, commonly known as 
proprietary foreclosure mitigation efforts. 

For federal efforts, we identified and reviewed statutes, regulations, 
requirements, guidance, and press releases. Further, to examine these 
foreclosure mitigation efforts, we obtained viewpoints from a wide 
range of housing market participants and observers, including federal 
officials from HUD, USDA, VA, and Treasury, as well as the Office of 
the Comptroller of the Currency (OCC), Federal Housing Finance Agency 
(FHFA), Board of Governors of the Federal Reserve System (Federal 
Reserve), Federal Deposit Insurance Corporation (FDIC), and Consumer 
Financial Protection Bureau (CFPB). In addition we met with staff from 
two government-sponsored-enterprises, Fannie Mae and Freddie Mac (the 
enterprises). We also met with housing market trade associations, 
including the Mortgage Bankers Association (MBA), Mortgage Insurance 
Companies of America, Association of Mortgage Investors, American 
Securitization Forum, and National Association of Realtors. Finally, 
we met with housing market observers and participants, such as 
CoreLogic, the Center for Responsible Lending, the National 
Association of Consumer Advocates, Amherst Securities, NeighborWorks 
America, HOPE NOW, and the National Community Reinvestment Coalition. 

To describe the volume, characteristics, and costs associated with 
federal efforts and specific foreclosure mitigation actions (such as 
loan modifications), we obtained summary data from Treasury, HUD, 
USDA, VA and the enterprises. We did not independently confirm the 
accuracy of these data. However, we took steps to ensure that the data 
we used were sufficiently reliable for our purposes, such as reviewing 
existing information about data quality, interviewing officials 
familiar with the data, and corroborating key information. We also 
reviewed reports generated by Treasury, HUD, USDA, VA, the 
enterprises, and FHFA describing the volume, characteristics, 
performance, and costs of foreclosure mitigation efforts and actions 
that occurred for the period of January 2009 through December 2011. 
[Footnote 108] To examine the volume, characteristics and performance 
of nonfederal foreclosure mitigation efforts, we reviewed publicly 
available data reported by HOPE NOW (an industry association) and 
servicers (through OCC's Mortgage Metrics Reports)[Footnote 109] We 
did not independently confirm the accuracy of the summary data we 
obtained from these sources. However, we took steps to ensure that the 
data we used were sufficiently reliable for our purposes, such as 
reviewing the data with officials familiar with generating the data. 

To supplement these data sources, we also analyzed loan-level 
servicing data we obtained from CoreLogic to examine the volume, 
characteristics, and performance of loan modifications made through 
both federal and nonfederal programs. The data we obtained provide 
wide coverage of the national mortgage market--that is, approximately 
65 percent to 70 percent of prime loans and about 50 percent of 
subprime loans, according to CoreLogic officials. Due to the 
proprietary nature of CoreLogic's estimates of its market coverage, we 
could not directly assess the reliability of these estimates. However, 
we have used CoreLogic data in prior reports in which we concluded 
that the data we used were sufficiently reliable for our purposes. 
[Footnote 110] Nevertheless, because of limitations in the coverage 
and completeness of the data, our analysis may not be representative 
of the mortgage market as a whole. CoreLogic's prime loans include 
conventional loans as well as loans insured or guaranteed by FHA, VA, 
and other government entities. Further, prime loans include near prime 
or Alt-A loans.[Footnote 111] For each mortgage, the CoreLogic 
database provides information on certain loan and borrower 
characteristics at origination, such as the original loan amount and 
interest rate as well as credit score, and a series of monthly 
observations, which include current mortgage status (current on 
payments, 30, 60, or 90 or more days delinquent, in foreclosure, real 
estate owned, or has paid off).[Footnote 112] 

We restricted our analysis to first-lien mortgages for the purchase or 
refinancing of single-family residential properties (1-to 4-units) in 
the 50 states and the District of Columbia that were active sometime 
during the period from January 2007 through June 2011. This data set 
contained about 58.2 prime mortgages and about 7.7 subprime mortgages. 
We reviewed documentation on the process CoreLogic used to collect its 
data. We discussed this process and the interpretation of different 
data fields with CoreLogic representatives. In addition, we conducted 
reasonableness checks on data elements to identify any missing, 
erroneous, or outlying data. Although the Core Logic data has certain 
limitations--for example, certain data fields are not fully reported--
we concluded that the data we used were sufficiently reliable for our 
purposes. 

To examine the volume, characteristics, and performance of loan 
modifications, we took a 15 percent random sample of the CoreLogic 
data set, which resulted in 7,608,603 prime mortgages and 608,704 
subprime mortgages. Although this data set did not contain direct 
information about the presence of modifications, we developed a set of 
algorithms to infer if the loan had been modified. We confirmed the 
accuracy of our algorithms by using our methodology to analyze data 
provided by OCC that included known modifications (see appendix III). 
We conducted several analyses on this data set. For example, we 
calculated the magnitude of payment reductions as well as the 6-month 
redefault rates for modified loans. 

To identify other key efforts intended to mitigate foreclosures, we 
interviewed a wide range of housing market participants and observers. 
We identified a number of efforts, such as improvements to servicing 
standards. To examine this effort, we reviewed information related to 
the consent orders OCC the federal banking regulators sent to 14 
servicers as well as the agreement reached by the federal government 
and state attorneys general agreement with the five largest servicers 
in the United States. 

To examine the current condition of the U.S. housing market, we 
analyzed the loan-level data we obtained from CoreLogic. We conducted 
our analysis on all active loans in June 2009, 2010, and 2011 that met 
our selection criteria.[Footnote 113] Specifically, we identified 
loans that were associated with an increased likelihood of foreclosure 
and then described the number and loan and borrower characteristics of 
these loans. First, we identified key characteristics associated with 
an increased likelihood of foreclosure by reviewing our prior work and 
other studies, as well as interviewing housing market participants and 
observers. Based on these studies and viewpoints, we identified the 
following five key characteristics: (1) loans with two or more missed 
payments; (2) loans with significant negative equity (a current LTV 
ratio of 125 percent or greater); (3) loans with significant negative 
equity located in an area with unemployment of 10 percent or greater; 
(4) loans with a high current interest rate (1.5 percentage points or 
150 basis points or higher above the market rate); and (5) loans with 
certain origination features, such as a credit score of 619 or below 
and an LTV of 100 percent or higher at the time of origination. 
[Footnote 114] 

Second, we analyzed the CoreLogic loan-level data to determine the 
extent to which loans were associated with these five characteristics. 
We took steps to ensure that the data we used were sufficiently 
reliable for our purposes, such as conducting reasonableness checks on 
data elements. In some cases, the CoreLogic data set did not contain 
information associated with these characteristics--specifically, 
negative equity, unemployment, and high interest rate. In these cases, 
we linked additional data to the CoreLogic data to derive this 
information. 

* To estimate a borrower's equity, we linked historical and current 
house price information at the zip code level to the CoreLogic data. 
Specifically, we calculated for each loan the current house value 
based on the date of origination. In areas where a house price did not 
exist we used the state-level average house price index for the month 
of origination and for June 2009, 2010, and 2011. Due to data 
limitations our analysis did not take into account additional liens. 
As a result, we may overstate the amount of equity a borrower has in 
their home. 

* To estimate unemployment levels that could affect borrowers we used 
employment data at the county level from the Bureau of Labor 
statistics (BLS) to analyze local area unemployment rates. We linked 
the local area unemployment data with zip code data in CoreLogic to 
determine a local area unemployment rate for each loan as of June 
2009, 2010, and 2011. If the local area unemployment rate was 10 
percent or higher we determined that the loan was in an area with a 
high unemployment.[Footnote 115] 

* For loans originated during the last 5 years, we determined high 
interest rates by comparing the interest rate on individual loans to 
the current Freddie Mac's Primary Mortgage Market Survey monthly 
results for adjustable rate mortgage (ARM), 30-year fixed, and 15-year 
fixed-rate mortgages, depending on the loan's origination mortgage 
product as of June 2009, 2010, and 2011. If the current interest rate 
was equal to or greater than the Freddie Mac rate by 150 basis points, 
we determined that the loan had a high interest rate. 

We analyzed loans with delinquency or with two or more of the other 
four characteristics associated with an increased likelihood of 
foreclosure (i.e., significant negative equity, significant negative 
equity and located in an area with high unemployment, high current 
interest rate, certain origination features). We also conducted a 
state-by-state analysis. 

To further examine the current condition of the U.S. housing market, 
we identified and analyzed key national housing market indicators, 
including measures of loan performance, home equity, unemployment, and 
home affordability. To identify these indicators, we reviewed a wide 
range of publicly available information and interviewed housing market 
participants and stakeholders. To analyze the indicators, we reviewed 
information in several reports, including, the National Delinquency 
Survey data issued by the Mortgage Bankers Association (MBA), data 
issued by the National Bureau of Economic Research, CoreLogic's Home 
Price Index, the Federal Reserve's statistical releases on the Flow of 
Funds Accounts of the United States, IHS Global Insight data on home 
affordability, and unemployment data reported by BLS. We did not 
independently confirm the accuracy of the information and analysis 
that we obtained from third parties. However, we took steps to ensure 
that the data we used from these sources were sufficiently reliable 
for our purposes, such as reviewing existing information about data 
quality, interviewing officials familiar with the data, and 
corroborating key information. 

To examine opportunities to enhance the effectiveness of foreclosure 
mitigation efforts, we identified and reviewed the purposes and goals 
of federal foreclosure mitigation efforts as well as statutes, 
requirements, and guidance associated with these efforts. To describe 
the costs associated with federal efforts and specific foreclosure 
mitigation actions, we obtained summary data from Treasury, HUD, USDA, 
VA and the enterprises. Again, we did not independently confirm the 
accuracy of the summary data we obtained. However, we took steps to 
ensure that the data we used were sufficiently reliable for our 
purposes, such as interviewing officials familiar with the data. We 
reviewed relevant principals of federal budgeting resulting from 
federal credit reform. We obtained the viewpoints of a wide range of 
housing market participants and observers. For example, we met with 
officials from Treasury, HUD, FHFA, Fannie Mae, Freddie Mac, VA, and 
USDA to understand the extent to which their foreclosure mitigation 
programs reached struggling borrowers. We discussed their activities 
to monitor the performance of their foreclosure mitigation efforts and 
the extent to which they had considered other factors that may affect 
performance. For instance, we asked whether they had analyzed the 
effect of loan and borrower characteristics on the performance of loss 
mitigation actions and considered redefault rates and loss severity 
when evaluating the costs and benefits of these actions. Finally, we 
discussed the utility of, as well as any obstacles to, taking these 
steps. 

To better understand characteristics that affect redefault rates of 
modified loans, we conducted an econometric analysis. Specifically, we 
analyzed a sample of loan-level data we obtained from CoreLogic. We 
took steps to ensure that the data we used were sufficiently reliable 
for our purposes, such as conducting reasonableness checks on data 
elements. In addition, we analyzed loan-level data we obtained from 
Treasury to examine the performance of HAMP loan modifications. The 
HAMP data are reported by servicers at the start of the trial 
modification period, during the trial period, during conversion to a 
permanent modification, and during the permanent modification phase of 
the program. The data contain several loan and borrower 
characteristics at origination, including the loan-to-value (LTV) and 
loan amount; as well as some information at time of the modification, 
including delinquency status. Since we did not have data on the 
performance history of the modified loans, we constructed the loan 
history using data from different points in time. The HAMP data have 
certain limitations. For instance, certain data fields are not fully 
reported, as indicated by the Department of the Treasury.[Footnote 
116] However, we determined that the data were sufficiently reliable 
for our purposes. See appendix V for a detailed summary of the 
methodology for the analysis of the CoreLogic and HAMP data, as well 
as the results from this analysis. 

We conducted this performance audit from October 2010 through June 
2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Foreclosure Mitigation Efforts: 

Department of the Treasury: 

Treasury has outlined the requirements for certain foreclosure 
mitigation programs in the MHA Handbook, which are summarized
here. These guidelines apply to mortgages that are not owned or 
guaranteed by Fannie Mae or Freddie Mac and that are not insured or 
guaranteed by the Federal Housing Administration (FHA), the Department 
of Veterans Affairs (VA), and the Department of Agriculture (USDA). 
Fannie Mae and Freddie Mac participate in the Home Affordable 
Modification Program (HAMP) but have issued their own guidance. FHA, 
VA, and USDA have issued guidance for companion programs that are 
separate from HAMP. 

Treasury’s programs provide relief to borrowers whose mortgages are held
in lenders’ portfolios or in private securitization trusts. To qualify,
mortgages must have been originated on or before January 1, 2009, and 
be secured by a one-to-four unit residential property. In general, 
borrowers must be delinquent or default must be reasonably foreseeable 
(imminent default). 

Figure 14: HAMP Permanent First-Lien Loan Modifications Completed by 
Calendar Quarter, 2009 through 2011: 

[Refer to PDF for image: vertical bar graph] 

2009, Q4; 
Number of modifications: 28,845. 

2010, Q1; 
Number of modifications: 73,402. 

2010, Q2; 
Number of modifications: 66,295. 

2010, Q3; 
Number of modifications: 52,309. 

2010, Q4; 
Number of modifications: 46,044. 

2011, Q1; 
Number of modifications: 42,132. 

2011, Q2; 
Number of modifications: 45,086. 

2011, Q3; 
Number of modifications: 57,034. 

2011, Q4; 
Number of modifications: 41,002. 

Source: Special Inspector General for TARP and Treasury MHA Servicer 
Performance Report. 

[End of figure] 

Home Affordable Modification Program (HAMP) Tier 1: HAMP Tier 1 
modifications reduce borrowers' monthly mortgage payments to affordable 
levels and help them avoid foreclosure. To be eligible under HAMP Tier 
1, borrowers must occupy the property and have monthly mortgage 
payments that exceed 31 percent of their monthly gross income. The HAMP 
Tier 1 evaluation includes identifying actions to be taken that will 
result in a monthly mortgage payment-to-income ratio of 31 percent. 
These actions must follow a standard sequence until this ratio is 
reached: capitalizing past due amounts, reducing the interest rate down 
to a minimum of 2 percent, extending the mortgage term by up to 40 
years from the date of modification, and forbearing principal. 
Servicers have the option of using an alternative sequence of 
modification actions under the Principal Reduction Alternative that 
includes principal forgiveness as a second step before reducing the 
interest rate. Servicers then use a standardized net present value 
(NPV) test to compare the financial benefits to the investor of 
modifying relative to not modifying the loan. Borrowers who are 
approved for HAMP Tier 1 begin with a trial period that lasts at least 
3 months. Borrowers who successfully complete a trial period receive a 
permanent modification. After 5 years, the interest rate begins to step 
up each year until the market rate is reached if the starting interest 
rate was below the market rate at the time of the modification. 
Treasury pays incentives to investors and servicers for completed 
modifications and to borrowers, investors, and servicers for the 
continued successful performance of certain modifications. More than 
450,000 nonenterprise permanent modifications were started between when 
the program began in 2009 and December 2011. 

HAMP Tier 2: Effective June 1, 2012, the HAMP Tier 2 program will offer 
modifications to certain borrowers who do not qualify for HAMP Tier 1, 
including those whose current mortgage payments are below 31 percent of 
their income and those who do not occupy the property as their primary 
residence. HAMP Tier 2 modifications will capitalize past due amounts, 
adjust interest rates to the market rate, extend loan terms to 40 
years, and forbear up to 30 percent of principal on loans with LTV 
ratios of more than 115 percent to reach the 115-percent threshold. 
Borrowers will be offered HAMP Tier 2 modifications only if these 
changes reduce monthly payments by at least 10 percent and result in 
payments ranging from 25 percent to 42 percent of monthly gross income. 

Second-Lien Modification Program (2MP): The Second Lien Modification 
Program (2MP) is designed to work in tandem with HAMP modifications to 
provide a comprehensive solution to help borrowers afford their 
mortgage payments. A participating servicer of a second lien for which 
the first lien receives a HAMP Tier 1 or Tier 2 modification must offer 
to modify the borrower's second lien, accept a lump sum payment from 
Treasury to fully extinguish the second lien, or accept a lump sum 
payment from Treasury to partially extinguish the second lien and 
modify the remaining portion. Under 2MP, servicers are required to take 
modification actions in the following order: capitalize accrued 
interest and other past due amounts; reduce the interest rate to as low 
as 1 percent for 5 years (when the interest rate will reset at the rate 
on the HAMP-modified first lien); extend the term to at least match the 
HAMP-modified first lien; and forbear or forgive principal in at least 
the same proportion as the forbearance or forgiveness on the HAMP-
modified first-lien, although servicers may choose to forbear or 
forgive more than that amount. According to Treasury, nearly 61,000 
second liens had been modified under 2MP, including nearly 13,000 that 
involved full extinguishments. 

Home Affordable Unemployment Program (UP): This program provides 
forbearance on mortgage loans to borrowers whose hardship is related to 
unemployment. Borrowers who indicate that their hardship is related to 
unemployment when being considered for HAMP must be evaluated for UP 
and, if qualified, receive an offer for forbearance. At their 
discretion, however, servicers may offer a HAMP trial period instead, 
although they must document their reasons. Servicers are not required 
to offer UP forbearance to borrowers whose delinquency exceeds 12 
months of scheduled monthly mortgage payments. The minimum duration of 
UP forbearance is 12 months unless the borrower finds a job during that 
time. There is no maximum forbearance period, and servicers may extend 
forbearance in increments at their discretion. Servicers must reduce 
monthly payments during the forbearance period to no more than 31 
percent of monthly gross income, but may opt to suspend them in full. 
When the forbearance period ends, the servicer must evaluate the 
borrower for HAMP or other modifications to resolve the delinquency. As 
of December 2011, more than 18,000 UP forbearance agreements had been 
started. 

Home Affordable Foreclosure Alternatives (HAFA): Borrowers who cannot 
afford to keep their homes must be considered for short sales and 
deeds-in-lieu of foreclosure (DIL) under the HAFA program. Borrowers 
may be considered for HAFA after being considered for HAMP or upon the 
borrower's request. Borrowers who qualify for a HAFA short sale must 
sign and return a short sale agreement that lasts for a minimum of 120 
days and that lists the minimum price, allowable transaction costs, and 
monthly mortgage payments to be made during the period of the 
agreement, if applicable. Borrowers may also qualify for HAFA if they 
have received an offer on their property and submit a request for a 
short sale. Through HAFA, a borrower may also receive a DIL either as a 
condition of the short sale agreement if the property doesn't sell or 
separately without a requirement to market the property. In all HAFA 
transactions, the title must be clear, any subordinate lien holders 
must release their liens, and investors must agree to the transaction. 
According to Treasury data, about 26,000 nonenterprise HAFA short sales 
and DILs had been completed as of December 2011. 

Fannie Mae: 

Fannie Mae has outlined the requirements for foreclosure mitigation 
programs in its Single Family Servicing Guide, which are summarized 
here. These guidelines apply only to mortgages that are owned or 
guaranteed by Fannie Mae. 

Fannie Mae recently changed its foreclosure mitigation workout 
hierarchy to require servicers to first evaluate whether borrowers 
face a temporary or permanent hardship. Temporary hardships may be 
addressed with repayment plans and temporary forbearance. Permanent or 
long-term hardships may be addressed with modifications (which may 
include forbearance) under the Home Affordable Modification Program 
(HAMP), Fannie Mae's standard loan modifications, short sales or deeds-
in-lieu of foreclosure (DIL) under the Home Affordable Foreclosure 
Alternatives program (HAFA) or Fannie Mae's own program. Fannie Mae 
also has a program to lease back a property that has been conveyed 
through a DIL to the former homeowner, called a deed-for-lease. 
Previously Fannie Mae required servicers to evaluate borrowers for a 
HAMP modification before considering them for other foreclosure 
mitigation actions. 

Figure 15: Fannie Mae Foreclosure Mitigation Actions Completed by 
Calendar Quarter, 2009 through 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

2009, Q1; 
Repayment plan and forbearance agreements: 7,445; 
HAMP loan modifications: 0; 
Non-HAMP loan modifications: 12,418; 
Short sales and deeds-in-lieu of foreclosure: 5,971. 

2009, Q2; 
Repayment plan and forbearance agreements: 4,752; 
HAMP loan modifications: 0; 
Non-HAMP loan modifications: 16,712; 
Short sales and deeds-in-lieu of foreclosure: 8,360. 

2009, Q3; 
Repayment plan and forbearance agreements: 5,398; 
HAMP loan modifications: 0; 
Non-HAMP loan modifications: 27,686; 
Short sales and deeds-in-lieu of foreclosure: 11,827. 

2009, Q4; 
Repayment plan and forbearance agreements: 5,353; 
HAMP loan modifications: 23,693; 
Non-HAMP loan modifications: 18,066; 
Short sales and deeds-in-lieu of foreclosure: 13,459. 

2010, Q1; 
Repayment plan and forbearance agreements: 8,682; 
HAMP loan modifications: 55,965; 
Non-HAMP loan modifications: 37,791; 
Short sales and deeds-in-lieu of foreclosure: 17,326. 

2010, Q2; 
Repayment plan and forbearance agreements: 8,716; 
HAMP loan modifications: 68,898; 
Non-HAMP loan modifications: 52,795; 
Short sales and deeds-in-lieu of foreclosure: 21,515. 

2010, Q3; 
Repayment plan and forbearance agreements: 6,208; 
HAMP loan modifications: 28,466; 
Non-HAMP loan modifications: 77,899; 
Short sales and deeds-in-lieu of foreclosure: 20,918. 

2010, Q4; 
Repayment plan and forbearance agreements: 7,973; 
HAMP loan modifications: 28,660; 
Non-HAMP loan modifications: 53,032; 
Short sales and deeds-in-lieu of foreclosure: 15,632. 

2011, Q1; 
Repayment plan and forbearance agreements: 9,916; 
HAMP loan modifications: 35,787; 
Non-HAMP loan modifications: 15,256; 
Short sales and deeds-in-lieu of foreclosure: 17,120. 

2011, Q2; 
Repayment plan and forbearance agreements: 8,683; 
HAMP loan modifications: 33,207; 
Non-HAMP loan modifications: 17,129; 
Short sales and deeds-in-lieu of foreclosure: 21,176. 

2011, Q3; 
Repayment plan and forbearance agreements: 8,202; 
HAMP loan modifications: 27,412; 
Non-HAMP loan modifications: 32,613; 
Short sales and deeds-in-lieu of foreclosure: 19,306. 

2011, Q4; 
Repayment plan and forbearance agreements: 8,517; 
HAMP loan modifications: 26,571; 
Non-HAMP loan modifications: 25,365; 
Short sales and deeds-in-lieu of foreclosure: 22,231. 

Source: Fannie Mae 10-Q and 10-K reports and SIGTARP. 

[End of figure] 

Repayment Plans and Forbearance: A repayment plan is an agreement 
between servicer and borrower that gives the borrower a period of time 
to reinstate the mortgage by making regular monthly payments plus an 
additional amount to repay the delinquency. Servicers may also offer 
forbearance to borrowers, which suspends or reduces payments for up to 
6 months. Forbearance periods longer than 6 months require written 
agreements with the borrower and written approval from Fannie Mae. 
Fannie Mae also has unemployment forbearance, which is the first action 
servicers must consider for unemployed borrowers. Fannie Mae clarified 
the requirements for this action in early 2012. Unemployment 
forbearance initially lasts for 6 months or until the borrower is 
reemployed, whichever occurs first. If the borrower completes the 
initial unemployment forbearance period and remains unemployed, the 
servicer may offer extended unemployment forbearance for up to 6 more 
months with Fannie Mae's approval. For all forbearance programs, once 
the borrower's hardship is resolved, the forbearance period ends and 
the borrower must repay the full amount, enter a repayment plan, or 
receive a loan modification or other foreclosure mitigation action. 
Fannie Mae completed about 90,000 repayment plans and forbearance 
agreements under these programs between January 2009 and December 2011. 

Home Affordable Modification Program (HAMP): Servicers must evaluate 
borrowers for HAMP before considering them for other modification 
options. Like Treasury's nonenterprise HAMP program, the Fannie Mae 
HAMP evaluation reduces the monthly mortgage payment-to-income ratio to 
31 percent by following a standard sequence of modification actions: 
capitalizing past due amounts, reducing the interest rate to a minimum 
of 2 percent, extending the mortgage term to up to 40 years, and 
forbearing principal. Servicers use Treasury's net present value (NPV) 
model to estimate the financial outcome of modifying or not modifying 
the loan. Unless the NPV result for not modifying the loan exceeds the 
NPV result for modifying the loan by more than $5,000, the servicer 
must move forward with the HAMP modification. Borrowers who are 
approved for HAMP begin with a trial period that lasts at least 3 
months. Modifications become permanent after borrowers have 
successfully completed the trial period. Fannie Mae pays borrower and 
servicer incentives for HAMP modifications but is not eligible for 
Treasury's investor incentives under HAMP. Fannie Mae completed nearly 
330,000 HAMP modifications as of December 2011. 

Non-HAMP Loan Modifications: Fannie Mae servicers must consider 
borrowers who do not qualify for HAMP or have defaulted on HAMP 
modification for standard modifications. The terms of Fannie Mae's 
standard loan modification program, which took effect October 1, 2011, 
require servicers to capitalize past due amounts, adjust interest rates 
to a fixed rate (to be adjusted from time to time based on market 
conditions), and extend the amortization term to 480 months. In 
addition, if the current loan-to-value (LTV) ratio exceeds 115 percent, 
the servicer must forbear up to 30 percent of the principal balance to 
bring the LTV ratio down to 115 percent. These changes must reduce 
monthly payments by at least 10 percent, and the borrower's front-end 
debt-to-income ratio must be greater than or equal to 10 percent and 
less than or equal to 55 percent in order for the modification to 
proceed. Fannie Mae offers up to $1,600 in incentives for each 
modification, depending on how early in the delinquency the 
modification takes effect. 

Prior to October 2011, Fannie Mae delegated authority to its largest 
servicers, which represent approximately 90 percent of loans, to offer 
modifications to borrowers who met specified eligibility criteria 
according to a standard set of waterfall steps. This modification 
structure was aimed at making monthly payments more affordable. Fannie 
Mae paid servicers $800 for each approved modification. Nearly 390,000 
loans were modified through Fannie Mae's non-HAMP programs between 
January 2009 and December 2011. 

Short Sales and Deeds-in-Lieu of Foreclosure: Borrowers who cannot 
afford to keep their homes must be considered for a short sale or DIL, 
first under HAFA and then under Fannie Mae's own program. Borrowers who 
qualify for a HAFA short sale must sign and return an agreement that 
lasts for 120 days and lists the minimum list price for the short sale, 
allowable transaction costs, and monthly mortgage payments for the 
period of the agreement. A HAFA DIL is generally available to borrowers 
who are unable to sell their properties under the HAFA short sale 
process. In certain instances--such as a serious illness, death, 
military relocation or in other cases when a borrower has no interest 
or ability to market the property--the servicer may offer DIL without 
going through the HAFA short sale process. Under Fannie Mae's program, 
Fannie Mae has delegated authority to certain servicers to offer short 
sales and DILs on its behalf under the terms of the delegated 
authority. However, servicers that do not have Fannie Mae's delegated 
authority are required to obtain Fannie Mae's approval on a case-by-
case basis. Fannie Mae short sales and DILs can be offered to borrowers 
who are ineligible for HAFA. Fannie Mae reported completing more than 
190,000 short sales and DIL transactions since January 2009. 

In addition, Fannie Mae has a deed-for-lease program as part of its DIL 
effort that has been in place since November 2009. Under this program, 
the borrower can receive a lease agreement for up to 12 months. Fannie 
Mae officials told us that most borrowers are looking to move out of 
the home at a time that is convenient for them rather than looking to 
stay for an extended period of time. 

Freddie Mac: 

Freddie Mac has outlined the requirements for foreclosure mitigation 
programs in its Servicer Guide, which are summarized here. These 
guidelines apply only to mortgages that are owned or guaranteed by 
Freddie Mac. 

Freddie Mac requires servicers to evaluate borrowers for 
foreclosure mitigation actions in accordance with a hierarchy, which 
begins with reinstatement, repayment plans and forbearance. If 
servicers determine that those options are not appropriate, they 
evaluate borrowers for a modification under the Home Affordable 
Modification Program (HAMP) before considering them for other 
foreclosure mitigation actions. If the borrower does not qualify for 
HAMP, the servicer evaluates the borrower for a Freddie Mac standard 
loan modification. If the borrower is not eligible for a modification, 
the servicer evaluates the borrower for a short sale or deed-in-lieu of 
foreclosure (DIL) under the Home Affordable Foreclosure Alternatives 
program (HAFA), and then under Freddie Mac's own program. 

Figure 16: Freddie Mac Foreclosure Mitigation Actions Completed by 
Calendar Quarter, 2009 through 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

2009, Q1; 
Repayment plans and forbearance agreements: 11,907; 
HAMP loan modifications: 0; 
Non-HAMP loan modifications: 24,623; 
Short sales and deeds-in-lieu of foreclosure: 2,661. 

2009, Q2; 
Repayment plans and forbearance agreements: 8,830; 
HAMP loan modifications: 0; 
Non-HAMP loan modifications: 15,603; 
Short sales and deeds-in-lieu of foreclosure: 4,180. 

2009, Q3; 
Repayment plans and forbearance agreements: 10,707; 
HAMP loan modifications: 0; 
Non-HAMP loan modifications: 9,013; 
Short sales and deeds-in-lieu of foreclosure: 5,695. 

2009, Q4; 
Repayment plans and forbearance agreements: 16,909; 
HAMP loan modifications: 13,927; 
Non-HAMP loan modifications: 1,878; 
Short sales and deeds-in-lieu of foreclosure: 6,533. 

2010, Q1; 
Repayment plans and forbearance agreements: 17,619; 
HAMP loan modifications: 34,969; 
Non-HAMP loan modifications: 9,259; 
Short sales and deeds-in-lieu of foreclosure: 7,064. 

2010, Q2; 
Repayment plans and forbearance agreements: 20,270; 
HAMP loan modifications: 32,027; 
Non-HAMP loan modifications: 17,535; 
Short sales and deeds-in-lieu of foreclosure: 9,542. 

2010, Q3; 
Repayment plans and forbearance agreements: 14,006; 
HAMP loan modifications: 17,102; 
Non-HAMP loan modifications: 22,182; 
Short sales and deeds-in-lieu of foreclosure: 10,472. 

2010, Q4; 
Repayment plans and forbearance agreements: 13,909; 
HAMP loan modifications: 9,048; 
Non-HAMP loan modifications: 28,155; 
Short sales and deeds-in-lieu of foreclosure: 12,097. 

2011, Q1; 
Repayment plans and forbearance agreements: 16,777; 
HAMP loan modifications: 12,617; 
Non-HAMP loan modifications: 22,541; 
Short sales and deeds-in-lieu of foreclosure: 10,706. 

2011, Q2; 
Repayment plans and forbearance agreements: 11,690; 
HAMP loan modifications: 14,592; 
Non-HAMP loan modifications: 16,457; 
Short sales and deeds-in-lieu of foreclosure: 11,038. 

2011, Q3; 
Repayment plans and forbearance agreements: 12,595; 
HAMP loan modifications: 9,457; 
Non-HAMP loan modifications: 14,462; 
Short sales and deeds-in-lieu of foreclosure: 11,744. 

2011, Q4; 
Repayment plans and forbearance agreements: 11,875; 
HAMP loan modifications: 8,780; 
Non-HAMP loan modifications: 10,268; 
Short sales and deeds-in-lieu of foreclosure: 12,675. 

Source: Freddie Mac 10-Q and 10-K reports and SIGTARP. 

[End of figure] 

Repayment Plans and Forbearance: A repayment plan is an agreement 
between the servicer and a borrower that gives the borrower a set 
period to reinstate the mortgage by making the borrower's contractual 
payments plus an additional amount to repay the delinquency. 
Forbearance is another temporary relief option that typically involves 
reducing or suspending payments for a period of time, and Freddie Mac 
has three different types of forbearance. Short-term forbearance, which 
does not require Freddie Mac's approval, is a written agreement that 
either suspends payments for up to 3 months or reduces payments for up 
to 6 months. Long-term forbearance, which requires a written agreement 
and Freddie Mac's written approval, is available under certain 
circumstances--for example, when the borrower is experiencing a 
hardship due to long-term or permanent disability--and reduces or 
suspends monthly payments for 4 to 12 months. Unemployment forbearance 
was added in early 2012. Servicers must consider unemployed borrowers 
for unemployment forbearance first. Unemployment forbearance initially 
lasts for 6 months or until the borrower gets a job, whichever occurs 
first. Borrowers who remain unemployed may be eligible for extended 
unemployment forbearance, which can last for up to 6 more months, so 
long as the borrower's total delinquency does not exceed 12 months, 
with Freddie Mac's approval. Freddie Mac reported that servicers had 
completed nearly 170,000 repayment plans and forbearance agreements 
under these programs between January 2009 and December 2011. 

Home Affordable Modification Program (HAMP): Servicers must evaluate 
borrowers for HAMP before considering them for other modification 
options. Like Treasury's nonenterprise HAMP program, the Freddie Mac 
HAMP evaluation includes following a standard sequence of modification 
actions to produce a monthly mortgage payment-to-income ratio of 31 
percent: capitalizing past due amounts, reducing the interest rate down 
to a minimum of 2 percent, extending the mortgage term by up to 40 
years from the date of modification, and, if applicable, forbearing 
principal. Servicers use Treasury's net present value (NPV) model to 
estimate the financial outcome of modifying or not modifying the loan. 
Unless the NPV result for not modifying the loan exceeds the NPV result 
for modifying the loan by more than $5,000, the servicer must move 
forward with the HAMP modification. Borrowers who are approved for HAMP 
begin with a trial period that lasts at least 3 months, and the 
modification becomes permanent if they successfully complete the trial 
period. Freddie Mac completed more than 150,000 HAMP modifications 
between January 2009 and December 2011. 

Non-HAMP Loan Modifications: Freddie Mac servicers also consider 
borrowers who do not qualify for HAMP or have defaulted on a HAMP 
modification for standard modifications. The terms of Freddie Mac's 
standard loan modification program, which became available on October 
1, 2011, require servicers to capitalize past due amounts, adjust 
interest rates to a Freddie Mac-specified fixed rate, and extend the 
amortization term to 480 months. In addition, if the current LTV ratio 
exceeds 115 percent, the servicer must forbear up to 30 percent of the 
unpaid principal balance to reduce the LTV to 115 percent. The 
modification proceeds only if these changes reduce the borrower's 
monthly principal and interest payments by at least 10 percent and the 
front-end debt-to-income ratio to greater than or equal to 10 percent 
and less than or equal to 55 percent. Servicers are eligible to receive 
incentives of up to $1,600 for each modification, depending on how 
early in the delinquency the modification takes effect. Prior to 
January 2012, Freddie Mac required all servicers to evaluate borrowers 
for a non-HAMP modification using a standard waterfall. In some cases, 
Freddie Mac delegated authority to some servicers to offer non-HAMP 
modifications. Servicers that did not have Freddie Mac's delegated 
authority were required to provide a recommendation to Freddie Mac for 
a non-HAMP modification. Freddie Mac would determine the conditions of 
non-HAMP modifications and offered incentives of $800 per completed 
modification. Freddie Mac modified more than 190,000 loans between 
January 2009 and December 2011 through their non-HAMP programs. 

Short Sales and Deeds-in-Lieu of Foreclosure: Borrowers who cannot 
afford or do not want to retain ownership of their homes must be 
considered for short sales and deeds-in-lieu of foreclosure (DIL), 
first under the Home Affordable Foreclosure Alternatives (HAFA) program 
and then under Freddie Mac's own program. These programs are typically 
the final options for avoiding foreclosure. Borrowers may be considered 
for HAFA only after being considered for home retention options, such 
as HAMP and a Freddie Mac standard modification. Borrowers who qualify 
for a HAFA short sale must sign and return a short sale agreement that 
lasts for 120 days and lists the minimum list price for the short sale, 
allowable transaction costs, and monthly mortgage payments to be made 
during the period of the agreement. Freddie Mac can extend the 
agreement if no acceptable purchase offers have been received, provided 
that the borrower has fully complied with the short sale agreement and 
an acceptable purchase offer is likely to occur during the extension 
period. Freddie Mac delegates the approval of HAFA short sales to 
servicers. A HAFA DIL is available only to borrowers who were unable to 
sell under the HAFA short sale process. With Freddie Mac's approval, 
the servicer prepares a DIL agreement that, among other things, sets 
the date when the owner will vacate the property and outlines monthly 
payment terms until then. Borrowers who are ineligible for HAFA may be 
eligible for a Freddie Mac short sale or DIL. In some cases, Freddie 
Mac requires that the servicer obtain approval prior to accepting short 
sale offers or offering a DIL agreement. Under both HAFA and Freddie 
Mac's short sale and DIL programs, if the borrower completes the 
transaction in accordance with Freddie Mac's standard requirements, the 
borrower is released from liability for the remaining unpaid balance on 
the mortgage. Freddie Mac reported completing more than 100,000 short 
sales and DILs since January 2009. 

Federal Housing Administration (FHA): 

The Federal Housing Administration (FHA) has outlined the 
requirements for foreclosure mitigation programs in a series of 
guidance documents (called mortgagee letters), which are summarized 
here. These guidelines apply only to mortgages that are insured by 
FHA. 

Prior to engaging in formal foreclosure mitigation actions, FHA 
requires servicers to address delinquencies through an early 
intervention process. This process involves contacting the borrower and 
gathering information on the borrower's circumstances and financial 
condition. The servicer may refer the borrower to default counseling. 
During this process, the servicer may come to an informal forbearance 
arrangement with the borrower, which lasts for 3 months or less, that 
helps the borrower reinstate the loan through a repayment plan. 

When a 
servicer determines the need for a formal foreclosure mitigation 
action, FHA requires servicers to ensure that the borrower can afford 
the new monthly payment. In addition, servicers must consider formal 
foreclosure mitigation actions in the following order, from the lowest 
upfront cost to FHA to the highest upfront cost: repayment plans and 
special forbearance, standard loan modification, partial claim, FHA-
HAMP, preforeclosure sale, and deed-in-lieu of foreclosure (DIL). To 
qualify for most of these actions, borrowers must be at least 90 days 
delinquent but no more than 12 months past due. 

Figure 17: FHA Formal Foreclosure Mitigation Actions Completed by 
Calendar Quarter, 2009 through 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

2009, Q1; 
Repayment plans and special forbearance: 38,040; 
Standard loan modifications: 19,101; 
Partial claims: 2,570; 
FHA-HAMP modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 1,474. 

2009, Q2; 
Repayment plans and special forbearance: 20,447; 
Standard loan modifications: 20,029; 
Partial claims: 2,166; 
FHA-HAMP modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 1,854. 

2009, Q3; 
Repayment plans and special forbearance: 14,013; 
Standard loan modifications: 17,852; 
Partial claims: 1,831; 
FHA-HAMP modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 2,602. 

2009, Q4; 
Repayment plans and special forbearance: 28,210; 
Standard loan modifications: 31,721; 
Partial claims: 1,509; 
FHA-HAMP modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 3,093. 

2010, Q1; 
Repayment plans and special forbearance: 36,370; 
Standard loan modifications: 36,505; 
Partial claims: 1,875; 
FHA-HAMP modifications: 177; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 3,556. 

2010, Q2; 
Repayment plans and special forbearance: 23,427; 
Standard loan modifications: 43,688; 
Partial claims: 3,875; 
FHA-HAMP modifications: 1,226; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 4,690. 

2010, Q3; 
Repayment plans and special forbearance: 28,867; 
Standard loan modifications: 39,989; 
Partial claims: 3,581; 
FHA-HAMP modifications: 885; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 4,817. 

2010, Q4; 
Repayment plans and special forbearance: 39,519; 
Standard loan modifications: 42,731; 
Partial claims: 2,884; 
FHA-HAMP modifications: 1,496; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 4,241. 

2011, Q1; 
Repayment plans and special forbearance: 64,403; 
Standard loan modifications: 39,021; 
Partial claims: 3,451; 
FHA-HAMP modifications: 2,112; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 5,503. 

2011, Q2; 
Repayment plans and special forbearance: 41,495; 
Standard loan modifications: 34,188; 
Partial claims: 3,144; 
FHA-HAMP modifications: 3,450; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 7,581. 

2011, Q3; 
Repayment plans and special forbearance: 54,213; 
Standard loan modifications: 26,028; 
Partial claims: 2,156; 
FHA-HAMP modifications: 2,199; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 8,876. 

2011, Q4; 
Repayment plans and special forbearance: 50,421; 
Standard loan modifications: 17,169; 
Partial claims: 1,292; 
FHA-HAMP modifications: 2,239; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 10,106. 

Source: FHA. 

[End of figure] 

Repayment Plans and Special Forbearance: Servicers may provide 
temporary relief to borrowers through repayment plans and special 
forbearance. Special forbearance combines a suspension or reduction in 
monthly mortgage payments with a repayment period and is available to 
borrowers who are at least 3 mortgage payments delinquent. Two types of 
special forbearance are available. Under Type I, the minimum 
forbearance period is 4 months, unless the borrower is unemployed, in 
which case the minimum forbearance period is 12 months under a 
temporary program change. Servicers must verify the employment status 
of unemployed borrowers monthly and certify that payments are made as 
scheduled. Type II special forbearance combines a short-term special 
forbearance plan with a loan modification or partial claim. The 
borrower must make three full monthly payments before the loan 
modification begins or the partial claim is executed. FHA provides 
servicers with incentive payments of $100 to $200 for Type I special 
forbearance agreements, depending on servicers' performance ratings. 
FHA does not provide incentives for Type II agreements because 
servicers can receive them for the subsequent loan modifications or 
partial claims. Servicers reported that about 440,000 repayment plans 
were completed between January 2009 and December 2011. During the same 
period, FHA paid incentives on about 67,000 Type I special forbearance 
plans. 

Standard Loan Modifications: Borrowers must have paid at least 12 full 
monthly mortgage payments and be at least 3 months delinquent in order 
to qualify for a standard loan modification. Servicers capitalize past 
due amounts, reduce interest rates to the current market rate, and 
extend the term by up to 10 years from the original maturity date or 
360 months. Borrowers generally must complete a trial period of 3 
months. FHA offers $750 in incentives per standard modification 
completed. More than 370,000 standard loan modifications have been 
completed since January 2009. 

Partial Claims: Servicers may advance funds on behalf of a borrower to 
reinstate a loan that is at least 4 months delinquent. The total past 
due amount may not exceed 12 months and the mortgage may not be in 
foreclosure. The advance (called a partial claim) does not change the 
borrower's monthly payments, so servicers must ensure that borrowers 
can resume making their regular payments. Borrowers must complete a 
trial period of at least 3 months making their regularly scheduled 
monthly payments before the partial claim is executed. FHA reimburses 
the servicer for the partial claim and executes an interest-free 
subordinate lien for the amount, which is payable when the property is 
sold or the first mortgage is paid off. FHA provides servicers with 
incentive payments of $500 per partial claim. FHA has paid claims on 
nearly 47,000 partial claims since January 2009. 

FHA-HAMP Modifications: Borrowers for whom a standard modification is 
not sufficient may be evaluated for a HAMP-style modification under the 
authority provided to HUD in 2009. The delinquent loan must have been 
originated at least 12 months before, and the borrower must have paid 
at least four full monthly payments. FHA-HAMP modifications bring 
borrowers' monthly payments down to 31 percent of income by reducing 
interest rates to the market rate, extending the loan term to 30 years, 
and deferring principal. Rather than capitalizing past due amounts, 
however, servicers advance funds to reinstate the loan. FHA reimburses 
the servicer for the advance (as with a partial claim) and executes an 
interest-free subordinate lien in the amount of the advance plus any 
deferred principal. The amount of the subordinate lien cannot exceed 30 
percent of the unpaid principal balance prior to the modification. FHA 
provides servicers with incentive payments of up to $1,250 per FHA-HAMP 
modification. According to data from FHA officials, about 13,000 FHA-
HAMP loan modifications have been completed since the program was 
implemented. 

Preforeclosure Sales and Deeds-in-Lieu of Foreclosure (DIL): Under a 
preforeclosure sale agreement (also called a short sale), FHA accepts 
the proceeds of the sale as satisfying the mortgage debt, as long as 
the net proceeds (sales price minus certain costs) are at least 84 
percent of the appraised value. A DIL is a voluntary transfer of a 
property from the borrower to FHA for a release of all obligations 
under the mortgage. FHA provides servicers with incentive payments of 
up to $1,000 for each completed preforeclosure sale and borrowers with 
payment of $750 to $1,000. For DILs, servicers can receive incentive 
payments of $250 per completed DIL transaction, and borrowers can 
receive $2,000. Nearly 60,000 pre-foreclosure sales and DILs have been 
completed since the beginning of 2009. 

Department of Veterans Affairs (VA): 

The Department of Veterans Affairs (VA) has outlined the requirements 
for foreclosure mitigation programs in a series of guidance documents, 
which are summarized here. These guidelines apply only to mortgages 
that are guaranteed by VA. 

VA recommends that servicers consider foreclosure mitigation actions 
in the following order: repayment plans, special forbearance, loan 
modifications (including VA-HAMP), refunded loans, compromise sales, 
and deeds-in-lieu of foreclosure (DIL). 

In addition, VA assigns each loan that is more than 60 days delinquent 
to a staff member, who monitors the servicer's activity to ensure 
appropriate action is taken to assist the veteran borrower. VA provides 
the contact information of the staff member to the borrower, as well as 
options for resolving the delinquency. If the loan becomes 120 days 
delinquent, the VA staff member performs a review of the adequacy of 
servicing, which includes reviewing the servicer's case notes, 
discussing the case with servicer staff, and serving as an intermediary 
between the servicer and borrower, if necessary. If VA determines the 
servicing has been adequate, another review will be performed in 90 
days. 

Figure 18: VA Foreclosure Mitigation Actions Completed by Calendar 
Quarter, 2009 through 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

2009, Q1; 
Repayment plans: 878; 
Special forbearance: 140; 
Loan modifications: 1,251; 
Refunded loans: 56; 
Compromise sales: 446. 

2009, Q2; 
Repayment plans: 850; 
Special forbearance: 103; 
Loan modifications: 1,198; 
Refunded loans: 45; 
Compromise sales: 558. 

2009, Q3; 
Repayment plans: 788; 
Special forbearance: 197; 
Loan modifications: 1,343; 
Refunded loans: 15; 
Compromise sales: 785. 

2009, Q4; 
Repayment plans: 794; 
Special forbearance: 145; 
Loan modifications: 1,468; 
Refunded loans: 15; 
Compromise sales: 1,111. 

2010, Q1; 
Repayment plans: 5,602; 
Special forbearance: 605; 
Loan modifications: 2,441; 
Refunded loans: 7; 
Compromise sales: 1,042. 

2010, Q2; 
Repayment plans: 3,652; 
Special forbearance: 336; 
Loan modifications: 3,245; 
Refunded loans: 12; 
Compromise sales: 1,448. 

2010, Q3; 
Repayment plans: 2,324; 
Special forbearance: 199; 
Loan modifications: 3,271; 
Refunded loans: 31; 
Compromise sales: 1,507. 

2010, Q4; 
Repayment plans: 2,044; 
Special forbearance: 185; 
Loan modifications: 4,211; 
Refunded loans: 22; 
Compromise sales: 1,406. 

2011, Q1; 
Repayment plans: 2,546; 
Special forbearance: 200; 
Loan modifications: 3,131; 
Refunded loans: 18; 
Compromise sales: 1,349. 

2011, Q2; 
Repayment plans: 2,102; 
Special forbearance: 169; 
Loan modifications: 2,783; 
Refunded loans: 11; 
Compromise sales: 1,563. 

2011, Q3; 
Repayment plans: 1,793; 
Special forbearance: 160; 
Loan modifications: 2,896; 
Refunded loans: 12; 
Compromise sales: 1,730. 

2011, Q4; 
Repayment plans: 1,729; 
Special forbearance: 183; 
Loan modifications: 2,834; 
Refunded loans: 9; 
Compromise sales: 1,756. 

Source: VA. 

[End of figure] 

Repayment Plans: Repayment plans, which last at least 3 months, allow 
borrowers to make their normal monthly payments plus a portion of the 
past due amount. Servicers must establish that the borrower is 
financially able to make these payments and must review the plan 
monthly to ensure that the borrower is complying with the plan. VA 
provides servicers with incentive payments of up to $200 for each 
repayment plan that reinstates a loan that was more than 60 days 
delinquent. According to data provided by VA officials, more than 
25,000 repayment plans have been completed since January 2009. 

Special Forbearance: VA recommends that servicers consider special 
forbearance for borrowers who would not be able to maintain a repayment 
plan. Special forbearance involves a written agreement in which the 
servicer agrees to reduce or suspend payments for a month or more. 
There is no maximum period for special forbearance plans. At the end of 
the forbearance period, the borrower must pay the total delinquency or 
enter into a repayment plan. VA provides servicers with incentive 
payments of up to $200 for each special forbearance plan that 
reinstates a loan that was more than 60 days delinquent. However, if 
the borrower starts a repayment plan at the end of the forbearance 
period, the special forbearance is not eligible for the incentive 
payment. Instead, the servicer receives it on the repayment plan if the 
loan is reinstated. According to data from VA officials, about 2,600 
special forbearance plans have been completed since the beginning of 
2009. 

Standard and VA-HAMP Loan Modifications: Servicers are allowed to 
modify loans without VA's prior approval provided certain regulatory 
conditions are met, such as the borrowers must have made at least 12 
full monthly mortgage payments, the loan is not modified more than once 
in a 3-year period, and no more than three times over the life of the 
loan. If the conditions are not satisfied, the servicer may seek VA 
prior approval to modify the loan if they have determined that the 
event or circumstance that caused the delinquency has been or will be 
resolved and is not expected to reoccur. The traditional loan 
modification results in a loan with a fixed interest rate that does not 
exceed the current market rate plus 50 basis points. The term of the 
loan may be extended to the shorter of 360 months after the due date of 
the first payment on the modification or 120 months after the original 
maturity date. According to VA officials, servicers are expected to use 
VA's underwriting guidance on affordability to determine whether the 
borrower can make the monthly payments, including recommended 
thresholds for residual income and debt-to-income ratios, with 
appropriate consideration of exculpatory or mitigating circumstances. 
If servicers determine that a traditional modification is not 
sufficient, they may evaluate the borrowers for a HAMP-style 
modification according to the guidelines VA issued in 2010. These VA-
HAMP modifications involve reducing the interest rate to as low as 2 
percent, extending the term of the loan to 480 months, and deferring 
principal. 

VA provides servicers with incentive payments of up to $700 for each 
loan modification that reinstates a loan that was more than 60 days 
delinquent. According to data from VA officials, about 30,000 loan 
modifications have been completed since the beginning of 2009. VA 
officials stated that they do not require servicers to specify whether 
the modifications they complete are traditional or VA-HAMP 
modifications when they report. However, the number of completed 
modifications increased markedly after the VA-HAMP guidance was issued 
in January 2010 (see figure). 

Refunded Loans: VA may elect to purchase a loan and assume the 
servicing responsibilities if the servicer determines that modifying 
the loan is not in the servicer's economic interest. VA officials we 
spoke with said that VA evaluates refunding options under the terms of 
HAMP modifications using a VA net present value (NPV) model. If the NPV 
result is positive, VA will refund the loan. Even if the NPV result is 
negative, VA will evaluate the borrowers' circumstances and may decide 
to refund the loan if the circumstances warrant it. This process is 
typically the final attempt to keep veterans in their home. According 
to data from VA officials, about 250 loans have been refunded since the 
beginning of 2009. 

Compromise (Short) Sales and Deeds-in-Lieu of Foreclosure (DIL): A 
compromise sale, also known as a short sale, is the first option the 
servicer should consider after determining that home retention options 
are not feasible. A compromise sale is typically for an amount that is 
less than the borrower's total indebtedness on the loan. VA provides 
servicers with incentive payments of up to $1,000 for each completed 
compromise sale on loans that were more than 60 days delinquent. 
According to data provided by VA officials, almost 13,000 compromise 
sales have been completed since the beginning of 2009. 

A DIL is a voluntary transfer of a property from the borrower to the 
holder for a release of all obligations under the mortgage. Servicers 
are to consider a DIL only after considering all other loss mitigation 
options and determining they are not viable. The servicer must obtain a 
VA appraisal of the property. After completing the DIL, the servicer 
may retain ownership of the property or transfer it to VA. VA provides 
servicers with incentive payments of up to $350 per deed-in-lieu of 
foreclosure transaction that is completed on loans that were more than 
60 days delinquent. According to data provided by VA officials, about 
2,000 DILs have been completed since the beginning of 2009. 

Department of Agriculture (USDA): 

The Department of Agriculture (USDA) has outlined the requirements 
for foreclosure mitigation programs in a loss mitigation guide and 
regulations, which are summarized here. These guidelines apply only to 
mortgages that are guaranteed by USDA. 

Servicers are encouraged to 
address delinquencies of one or two missed payments through an early 
intervention process. This process involves borrower analysis, where 
the servicer gathers information on the borrower's circumstances, 
intentions, and financial condition, and default counseling, where the 
servicer provides the borrower with information on available resources 
for housing counseling and loss mitigation options. During this 
process, the servicer may come to an informal forbearance arrangement, 
which lasts for 3 months or less, that helps the borrower reinstate the 
loan. 

When moving into formal mitigation actions (which begin when the 
borrower is 90 days or more delinquent), servicers should determine 
first whether the default is curable or noncurable. For curable 
defaults, servicers should consider special forbearance, loan 
modifications, and special loan servicing. For noncurable defaults, 
servicers should consider preforeclosure sales and deeds-in-lieu of 
foreclosure. 

Figure 19: USDA Foreclosure Mitigation Actions Approved by Calendar 
Quarter, 2009 through 2011: 

[Refer to PDF for image: stacked vertical bar graph] 

2009, Q1; 
Special forbearance: 490; 
Traditional loan modifications: 1,015; 
Special loan servicing modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 121. 

2009, Q2; 
Special forbearance: 401; 
Traditional loan modifications: 661; 
Special loan servicing modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 163. 

2009, Q3; 
Special forbearance: 422; 
Traditional loan modifications: 691; 
Special loan servicing modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 174. 

2009, Q4; 
Special forbearance: 408; 
Traditional loan modifications: 1186; 
Special loan servicing modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 132. 

2010, Q1; 
Special forbearance: 393; 
Traditional loan modifications: 1,352; 
Special loan servicing modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 203. 

2010, Q2; 
Special forbearance: 288; 
Traditional loan modifications: 1,095; 
Special loan servicing modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 312. 

2010, Q3; 
Special forbearance: 264; 
Traditional loan modifications: 823; 
Special loan servicing modifications: 0; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 344. 

2010, Q4; 
Special forbearance: 327; 
Traditional loan modifications: 1,043; 
Special loan servicing modifications: 5; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 359. 

2011, Q1; 
Special forbearance: 307; 
Traditional loan modifications: 694; 
Special loan servicing modifications: 10; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 320. 

2011, Q2; 
Special forbearance: 431; 
Traditional loan modifications: 1,216; 
Special loan servicing modifications: 12; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 486. 

2011, Q3; 
Special forbearance: 846; 
Traditional loan modifications: 1,565; 
Special loan servicing modifications: 53; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 390. 

2011, Q4; 
Special forbearance: 851; 
Traditional loan modifications: 1,410; 
Special loan servicing modifications: 63; 
Preforeclosure sales and deeds-in-lieu of foreclosure: 591. 

Source: USDA. 

[End of figure] 

Special Forbearance: A special forbearance plan can be structured to 
gradually increase monthly payments to repay the past due amount over 
time (at least 4 months) or through a resumption of normal payments for 
3 or more months followed by a loan modification. Servicers may also 
suspend or reduce payments for 1 or more months (typically for periods 
of up to 3 months) to allow the borrower to recover from the cause of 
the delinquency, or may allow the borrower to resume making full 
monthly payments while delaying the repayment of the past due amount. 
The past due amount must not exceed the equivalent of 12 months of 
principal, interest, taxes, and insurance. There is no maximum duration 
for special forbearance plans, but the term must be reasonable and 
based upon the borrower's repayment ability. USDA does not provide 
servicers with incentive payments for special forbearance plans. 
According to USDA, more than 5,000 special forbearance servicing plans 
were approved between January 2009 and December 2011. 

Traditional Loan Modifications: Loan modifications can be offered only 
if borrowers are 3 or more months delinquent or in imminent danger of 
default. A loan that is in foreclosure must be removed from foreclosure 
status in order to be modified. Borrowers must be owner-occupants of 
the property and be committed to occupying the property as a primary 
residence. The servicer must verify the property's physical condition 
through an inspection before approving a modification. The term of the 
loan modification should not exceed 360 months from the date of the 
original loan, because USDA's guarantee is only in effect for 30 years 
from the date of the original loan. Loan modifications may include 
reducing interest rates, including to below market levels; capitalizing 
all or a portion of past due amounts into the mortgage balance; and 
reamortizing the balance due. The modified balance may exceed the 
original loan balance and may equal more than 100 percent of the 
property's current value. Modified loans that become delinquent are to 
be treated as new delinquencies, and servicers are to go through the 
full loss mitigation process. USDA does not offer servicers incentive 
payments for completing loan modifications. According to USDA, almost 
13,000 loan modification servicing plans were approved between January 
2009 and December 2011. 

Special Loan Servicing: Under regulations finalized in September 2010, 
USDA authorized servicers to provide additional relief to borrowers 
when traditional servicing methods do not provide a means to cure the 
default. As with loan modifications, the borrower must be in default or 
facing imminent default and must occupy the property as the primary 
residence and intend to continue doing so. Under this authority, called 
special loan servicing, servicers must reduce the interest rate to the 
market rate plus 50 basis points and extend the loan term up to 30 
years. If necessary, the servicer may reduce the interest rate further, 
extend the term of the loan to up to 40 years from the date of the 
modification, and/or advance funds to satisfy the borrower's past due 
amount, including legal fees and costs related to a canceled 
foreclosure. In addition, the servicer may defer principal. The sum of 
funds advanced cannot exceed 30 percent of the unpaid principal balance 
at the time of default and cannot cover past due amounts of more than 
12 months of principal, interest, taxes, and insurance. USDA will 
reimburse the servicer for this amount and the borrower will execute a 
subordinate lien that is due when the property is sold or the mortgage 
paid off. Borrowers who are delinquent at the time of special loan 
servicing must complete a 3-month trial period, and borrowers who are 
in imminent default a 4-month trial period. According to USDA, 143 
special loan servicing modification plans were approved between January 
2009 and December 2011. 

Preforeclosure Sales and Deeds-in-Lieu of Foreclosure (DIL): A 
preforeclosure sale, also known as a short payoff or short sale, is the 
first option servicers are to consider after determining that a 
borrower cannot resolve a default. A preforeclosure sale is generally 
for an amount that is less than the borrower's total indebtedness on 
the loan. The preforeclosure sale period is typically 3 months, and the 
servicer must review the sale plan every 30 days. If no closing date is 
scheduled within 90 days, the servicer may discuss the likelihood of a 
sale with the real estate broker and determine whether to extend the 
sale period by 30 days (if a sale is likely) or end the sale period. 
USDA provides servicers with incentive payments of up to $1,000 for 
each completed sale. According to USDA, almost 3,000 preforeclosure 
sale servicing plans were approved between January 2009 and December 
2011. 

A DIL is a voluntary transfer of a property from the borrower to the 
holder for a release of all obligations under the mortgage. A DIL is 
preferable to foreclosure because it avoids the time and expense of a 
legal foreclosure action, and the property is generally in better 
physical condition because the borrower is cooperating with the 
servicer. USDA provides servicers with incentive payments of up to $250 
for each completed DIL transaction. According to USDA, more than 200 
DIL servicing plans were approved between January 2009 and December 
2011. 

Refinance Programs Targeting Distressed Borrowers: 

Refinancing can provide relief to borrowers who need lower monthly 
payments, but borrowers who are delinquent or who owe more than their 
homes are worth are generally unable to qualify. Here we present 
information on federal refinance programs that specifically target 
distressed borrowers. 

Home Affordable Refinance Program: The Home Affordable Refinance 
Program (HARP) was announced in February 2009 as a way to help 
borrowers who were current on their mortgage payments but unable to 
refinance because of declining home values. Under HARP, such borrowers 
can benefit from reduced interest rates that make their mortgage 
payments more affordable. Only mortgages owned by Fannie Mae and 
Freddie Mac are eligible. Initially, HARP targeted borrowers with 
current loan-to-value (LTV) ratios between 80 percent and 105 percent, 
although in July 2009 the Federal Housing Finance Agency (FHFA) revised 
those requirements to include borrowers with current LTV ratios of up 
to 125 percent. To respond to continued weakness in the housing market, 
including the large number of borrowers with significant negative 
equity (current LTV ratios that are greater than 125 percent), FHFA 
announced changes to HARP in October 2011. Among these changes was the 
removal of the LTV cap--allowing borrowers with current LTV ratios 
above 125 percent to refinance--and reduced delivery fees (fees that 
the enterprises charge to servicers and that are typically passed on to 
the borrower). The standard mortgage insurance requirements for these 
refinance loans were relaxed so that borrowers who did not have 
mortgage insurance on their existing loan did not have to purchase it 
for their refinanced loan, something that would typically be required 
for a loan with an LTV ratio of more than 80 percent: 

FHA Refinance for Homeowners in Negative Equity Positions: Treasury 
worked in conjunction with FHA to establish the FHA Refinance for 
Borrowers in Negative Equity Positions (FHA Short Refinance), which is 
in part supported by TARP funds. For loans refinanced under the FHA 
Short Refinance program, Treasury will pay claims on those loans up to 
a predetermined percentage after FHA has paid its portion of the claim. 
This program took effect in September 2010 and provides an opportunity 
to borrowers who are current on their mortgage payments and who have 
loans not insured by FHA that have current LTV ratios greater than 100 
percent to refinance into an FHA-insured mortgage. In order to qualify, 
investors must write down at least 10 percent of the outstanding 
principal and achieve an LTV ratio of no more than 97.75 percent. 
Through December 2011, FHA Short Refinance has had limited success, 
reaching 646 borrowers. 

Borrowers who receive a refinance under the FHA Short Refinance program 
and who have second liens may qualify for relief under the Treasury/FHA 
Second Lien Program. Treasury provides incentives to investors and 
servicers for partially or fully extinguishing these second liens. 
While Treasury allocated $2.7 billion in TARP funds to the program, it 
had not made any incentive payments as of December 31, 2011, and no 
second liens had been extinguished. 

Other Selected Efforts: 

There are many other efforts that have been undertaken, including 
those by states, localities, and private organizations to mitigate 
foreclosures. Here we highlight three other efforts: the FDIC loan 
modification program, which was considered in developing the Home 
Affordable Modification Program (HAMP); the Housing Finance Agency 
Innovation Fund for Hardest Hit Housing Markets, which provides TARP 
funds to 18 states and the District of Columbia to develop innovative 
solutions to address housing problems; and the Emergency Homeowners 
Loan Program, which provided funds to the remaining 32 states and 
Puerto Rico to provide temporary assistance to unemployed borrowers. 

FDIC Loan Modifications: On July 11, 2008, FDIC was named conservator 
of IndyMac Federal Bank. Soon after, FDIC developed a loan modification 
program to modify nonperforming mortgages owned or serviced by the bank 
into affordable loans. Under that program, the goal was to reduce 
monthly payments to 38 percent of monthly gross income (this amount was 
subsequently changed to 31 percent, the same as HAMP) through 
capitalization, interest rate reduction, term extension, and, if 
necessary, principal forbearance--the same waterfall used by HAMP. The 
loan modification program implemented at Indymac Federal Bank served as 
a model for loan modification requirements found in Shared-Loss 
Agreements. According to FDIC staff, no federal funds have been 
expended for these failed bank resolutions. 

Housing Finance Agency Innovation Fund for the Hardest Hit Housing 
Markets (Hardest Hit Fund): Treasury obligated $7.6 billion to 18 state 
housing finance agencies in states that were designated as among the 
hardest hit by the housing crisis, plus the District of Columbia. These 
states were to develop innovative solutions appropriate for their 
states. Treasury approved plans for these states' programs, which 
totaled 55 as of December 2011. These programs target unemployed 
borrowers with temporary relief as well as offer loan modification 
assistance, refinance options, and foreclosure alternatives. 

Emergency Homeowners Loan Program: Through the Emergency Homeowners 
Loan Program (EHLP), HUD provided short-term loans to unemployed 
borrowers to help meet their mortgage obligations in the 32 states and 
Puerto Rico that did not receive Hardest Hit Fund dollars. The program 
was designed to provide mortgage payment relief (up to $50,000 total) 
to eligible homeowners experiencing a drop in income of at least 15 
percent to cover past-due mortgage payments as well as a portion of the 
homeowner's mortgage payment for up to 24 months. HUD permitted five 
states with similar programs already in place--Connecticut, Delaware, 
Idaho, Maryland, and Pennsylvania--to direct their allocations to those 
programs. NeighborWorks America, a federally chartered nonprofit 
organization, administers EHLP for the remaining 27 states and Puerto 
Rico that did not receive Hardest Hit Fund dollars and did not have 
existing programs similar to EHLP. Applications for funds under EHLP 
were due in September 2011. HUD reported that, as of September 30, 
2011, slightly more than half of the $1 billion allocated to the 
program had been obligated. As of December 2011, more than 5,500 EHLP 
loans had been closed and nearly 6,000 other loans were in process. 

[End of section] 

Appendix III: Description of GAO's Methodology to Identify Loan 
Modifications: 

This appendix describes the algorithms we developed to identify 
mortgages that received a modification action and the steps we took to 
demonstrate the reliability of our results. By identifying the 
modification actions, we were able to examine the timing and 
characteristics of modification activity, and to see how certain 
characteristics affected the loan performance of a broad set of 
modified mortgages. We developed the algorithms because direct 
information on loan modifications is not generally available, and is 
not reported in the proprietary loan-level data set of prime, Alt-A, 
and subprime mortgages compiled by CoreLogic, an aggregator of monthly 
mortgage data reported by servicers that have agreed to provide this 
information. The CoreLogic data provide wide coverage of the entire 
mortgage market--approximately 65 percent to 70 percent of prime loans 
and about 50 percent of subprime loans, according to CoreLogic 
officials.[Footnote 117] First, we took several steps to prepare the 
data so that we would have complete and clean loan performance 
histories. Second, we developed algorithms to identify month-to-month 
changes in loan terms that would indirectly indicate the presence of 
modifications. We reviewed statistics on the volume and features of 
loan modifications contained in OCC's mortgage metric reports and 
shared our approach and algorithms with a variety of researchers, 
analysts, and regulators, making adjustments in response to their 
comments. Finally, we assessed the performance of our algorithms by 
applying them to a large set of mortgages serviced by entities subject 
to OCC's regulation. These servicers provided information on 
modifications and loan and borrower characteristics directly to OCC. 

Data Source and Preparation: 

We began with a sample of mortgages in the CoreLogic database that met 
certain requirements. Specifically, we restricted our analysis to 
first-lien mortgages for the purchase or the refinancing of single-
family residential properties (1-to 4-units) located in the 50 states 
and the District of Columbia that were active during the period from 
January 2007 through June 2011. We took a 15-percent sample of this 
set of loans that resulted in a set of 7,608,603 prime (and Alt-A) 
mortgages and 608,704 subprime mortgages. For each mortgage, the 
CoreLogic database provided information on selected loan and borrower 
characteristics at origination.[Footnote 118] It also provided a 
series of monthly observations on, among other items, the balance, 
scheduled payment, interest rate, and mortgage status (current; 30,60, 
or 90 or more days delinquent; in foreclosure; real estate owned; or 
paid in full). This yielded a panel data set with a sequence of 
monthly observations for each loan. Because we required information on 
month-to-month changes for certain loan characteristics, such as 
balance and interest rate, we needed complete and reliable information 
on these characteristics for each month that a loan was active during 
the period. However, many mortgages, particularly subprime mortgages, 
had an incomplete set of monthly observations, often because a 
servicer stopped providing information to CoreLogic.[Footnote 119] In 
these cases, we had a sequence of monthly observations early on but 
not complete information for our entire period, even though the 
mortgage was still active. We also had incomplete data for loans that 
were transferred from servicers that did not participate with 
CoreLogic to servicers that did and for loans with servicers who 
joined CoreLogic later in our sample period, leaving us without 
information on the earlier mortgage activity. We excluded loans with 
these and other data-reporting issues that impaired our ability to 
identify loan modifications over our time period.[Footnote 120] For 
the remaining loans (those with complete information), we calculated 
the changes in interest rate, balance, and scheduled payment from 
their values in the previous month. 

Development of Algorithms: 

To identify modification actions we developed decision rules or 
algorithms for identifying monthly changes in mortgage terms that were 
likely to indicate an actual modification action. Some changes to 
mortgage terms were expected, but others were not. For instance, in 
the case of a fully amortizing, fixed-rate mortgage, the interest rate 
should not change for the entire duration of the mortgage. Thus any 
change to the interest rate should indicate a modification. But in the 
case of an adjustable rate mortgage (ARM) or hybrid mortgage, the 
interest rate changes in expected ways according to reset provisions 
in the mortgage contract. Thus, a change to the interest rate in a 
month in which a rate change was expected and by an amount consistent 
with identified reset parameters would likely not indicate a 
modification. Our decision rules differed depending on whether a 
mortgage was a fixed-rate mortgage, ARM, or hybrid mortgage. 

Because we could observe month-to-month changes in interest rates and 
loan balance, our algorithms focus on interest rate decreases, balance 
increases, and balance decreases that were likely to indicate a 
modification. We relied on rules developed by Federal Reserve Bank 
researchers to inform our initial screens.[Footnote 121] Their 
approach screened out quite small changes and set upper and lower 
bounds on balance changes. In some contexts, they also used 
information on a loan's performance status as part of their decision 
rules--for instance, by requiring that observed changes be counted as 
modifications only if the mortgage was delinquent before the observed 
change. We modified these concepts, initially, accepting as potential 
modifications even very small changes in interest rates and balances. 
We did not impose upper bounds on balance changes, and we did not 
require that loans be delinquent. We made the latter decision because 
the HAMP program provides modifications for borrowers who are in 
imminent risk of default on their mortgages, even though they may be 
current in their payments. Additionally, in the case of prime, 
subprime and Alt-A hybrid loans, and subprime ARM loans, we compared 
the interest rate in the month of a rate change to the rate that 
equaled the loan's specified margin and the specified index interest 
rate that was used to determine any adjustments. If the rate in the 
month of a rate change was lower than our calculated rate by more than 
100 basis points, we accepted the change as a modification because the 
decrease was large relative to what would be expected. 

We placed each identified action into one of five broad categories: 
capitalization accompanied by a rate reduction; capitalization only; 
rate reduction only; balance decrease accompanied by a rate reduction; 
and balance reduction only. For a month-to-month balance decrease, we 
could not distinguish between balance forbearance and balance 
forgiveness. In addition, because these month-to-month changes were 
net changes, we could not identify modifications in which arrears were 
added to the balance (capitalization) at the same time as an 
offsetting balance reduction. For example, we could not distinguish a 
(net) balance decrease modification from a modification in which a 
capitalization is more than offset by balance forbearance or 
forgiveness. Similarly, we could not distinguish a (net) balance 
increase modification from a modification in which a capitalization is 
less than offset by balance forbearance or forgiveness. 

After examining the resulting volume, timing, and composition of our 
initial set of identified actions and incorporating information from 
OCC mortgage metric data, we tightened our screens by adjusting the 
lower bounds, including upper bounds, and imposing some loan 
performance conditions (see table 2). We discussed our general 
approach with Federal Reserve Bank researchers, OCC staff, 
representatives from CoreLogic, and representatives from Amherst 
Securities Group, LP. Further, we discussed our preliminary results 
with these researchers, OCC staff, and representatives from CoreLogic. 

Table 2: Screens Used to Identify Loan Modifications: 

Modification type: Capitalization and rate reduction; 
Rate screen: Exceed 12.5 basis points; 
Balance screen: Increase between 0.5% and 50%; 
Additional screen: None. 

Modification type: Capitalization only; 
Rate screen: NA; 
Balance screen: Increase between 2.25% and 50%; 
Additional screen: Performance: loan must be delinquent in prior month. 

Modification type: Rate reduction only; 
Rate screen: Exceed 100 basis points; 
Balance screen: NA; 
Additional screen: None. 

Modification type: Balance decrease and rate reduction; 
Rate screen: Exceed 12.5 basis points; 
Balance screen: Decrease between 2% and 50%; 
Additional screen: Concurrent decrease in scheduled payment and loan 
must be delinquent in prior month. 

Modification type: Balance decrease only; 
Rate screen: NA; 
Balance screen: Decrease between 4% and 50%; 
Additional screen: Concurrent decrease in scheduled payment and loan 
must be delinquent in prior month. 

Source: GAO. 

[End of table] 

We did not attempt to identify modifications with only a term 
extension characteristic because of data reliability issues concerning 
information on a loan's original term and maturity date and because 
this type of modification occurred fairly infrequently. However, for 
months in which we did find a rate change or balance change, we solved 
for the amortization period associated with other mortgage 
characteristics at modification, and estimated whether and by how much 
the mortgage term had been extended. Specifically, we placed each 
action into one of three term extension categories: with term 
extension (if the estimated term extension was between 4 and 200 
months); no term extension (if the estimated term extension was less 
than 4 months or greater than 200 months); or unknown term extension 
(if we were not able to calculate a measure of term extension). 

Robustness Test: 

Our algorithms performed well when applied to a database of mortgages 
containing information reported by servicers on both modified and 
nonmodified loans. We were able to obtain information from OCC's 
database on mortgage characteristics and monthly loan performance for 
two samples of 1,000,000 loans that were active for at least some 
portion of the period from January 2009 to December 2010.[Footnote 
122] One sample included known modified loans, the other loans that 
had not been modified. We used similar data cleaning steps we 
developed for the CoreLogic data to screen out mortgages without 
complete and reliable histories and selected only fixed-rate mortgages 
for our robustness test. We examined fixed-rate mortgages because they 
were by far the most prominent mortgage type in our CoreLogic data 
sample. Because ARMs by definition have more month-to-month changes 
than fixed-rate mortgages, algorithms for ARMs are likely to be less 
successful in identifying true modifications. To the extent that ARMs 
were proportionately more troubled and more likely to be candidates 
for modification, this difficulty was a limitation Nonetheless, we 
believe our overall approach was reasonable and reliable. Furthermore, 
our econometric analysis in appendix V is robust to the issue of ARM 
modifications. 

We were left with 434,635 fixed-rate mortgages with known 
modifications and 513,645 fixed-rate mortgages without modifications. 
When we applied our algorithms to the set of 434,635 modified 
mortgages, we identified 415,367 as having at least one modification 
action. Because a mortgage can receive a modification action in more 
than one month, we identified a total of 450,131 modification actions 
over this time period. Table 3 shows the relationship between OCC's 
data and GAO's at the loan level, combining the known modified and 
nonmodified loans. 

Table 3: Relationship between OCC and GAO Modification Status at the 
Loan Level: 

GAO: No; 
OCC: No: 511,405; 
OCC: Yes: 19,268; 
Total: 530,673. 

GAO: Yes; 
OCC: No: 2,240; 
OCC: Yes: 415,367; 
Total: 417,607. 

Total; 
OCC: No: 513,645; 
OCC: Yes: 434,635; 
Total: 948,280. 

Source: GAO analysis of OCC data. 

[End of table] 

Of the 434,635 loans for which there was at least one directly 
reported modification action, we missed 19,268 (4.4 percent) of them. 
We believe that this percentage is an acceptable incidence of false 
negatives. Of the loans for which our algorithms did not indicate a 
modification, about 10 percent of the actions were reported to be term 
extensions only. We did not develop algorithms for this type of 
modification because of data limitations and evidence that term 
extensions only were not frequent. Approximately 40 percent were rate 
reductions only with very small rate movements, and approximately 30 
percent were capitalization-only actions. For the set of 513,645 
nonmodified loans, our algorithms identified 2,240 loans with at least 
one modification action, or 0.4 percent of these loans. OCC staff 
expressed concerns about the usefulness of an algorithmic approach to 
the identification of modifications. Nonetheless, we interpret our low 
rate of false negatives in conjunction with this low false positive 
rate to mean that our decision rules were appropriate. That is, our 
algorithms found virtually all of the known modifications and very few 
modifications in the nonmodified sample. 

We were also interested in assessing how the volume of modification 
actions captured by our algorithms compared to the volume of directly 
reported modification actions over time. In OCC's monthly mortgage 
data, we defined the month of a modification as the month when the 
database field for the date of last modification matched the month of 
the data record. For example, in the February 2010 data record, the 
date of last modification indicated that a modification occurred in 
February 2010. In some cases, however, the date of last modification 
was not reported until after the fact--for example, a data record for 
September 2010 might provide the first indication that a modification 
had occurred in June 2010. In these cases, we selected as the month of 
modification the month indicated as the month of last modification, 
even if it was not reported until later. We totaled modification 
actions for each month from January 2009 through December 2010 for the 
directly reported actions and for those identified by our algorithms. 
Figure 20 presents the modification volume during the period and shows 
that the pattern indicated by the application of our algorithms is 
comparable to the pattern of modifications provided directly by 
servicers. 

Figure 20: Comparison of Modification Volumes of Fixed-Rate Mortgages 
as Described by OCC Data and GAO Algorithms Applied to OCC Data, 2009 
through 2010: 

[Refer to PDF for image: multiple line graph] 

Number of modifications: 

2009: 

January; 
GAO: 10,977; 
OCC: 12,774. 

February; 
GAO: 11,286; 
OCC: 11,311. 

March; 
GAO: 13,848; 
OCC: 13,752. 

April; 
GAO: 15,556; 
OCC: 13,082. 

May; 
GAO: 14,309; 
OCC: 17,467. 

June; 
GAO: 11,753; 
OCC: 14,104. 

July; 
GAO: 10,455; 
OCC: 10,341. 

August; 
GAO: 9,505; 
OCC: 10,162. 

September; 
GAO: 10,28; 
OCC: 11,958. 

October; 
GAO: 9,901; 
OCC: 10,268. 

November; 
GAO: 13,011; 
OCC: 10,685. 

December; 
GAO: 17,076; 
OCC: 17,559. 

2010: 

January; 
GAO: 18,762; 
OCC: 22,800. 

February; 
GAO: 22,829; 
OCC: 24,464. 

March; 
GAO: 25,093; 
OCC: 25,958. 

April; 
GAO: 23,879; 
OCC: 24,144. 

May; 
GAO: 28,101; 
OCC: 25,805. 

June; 
GAO: 31,897; 
OCC: 33,447. 

July; 
GAO: 26,328; 
OCC: 27,488. 

August; 
GAO: 29,211; 
OCC: 27,858. 

September; 
GAO: 27,150; 
OCC: 30,726. 

October; 
GAO: 24,404; 
OCC: 26,003. 

November; 
GAO: 22,287; 
OCC: 25,066. 

December; 
GAO: 22,233; 
OCC: 22,100. 

Source: GAO analysis of OCC data. 

[End of figure] 

[End of section] 

Appendix IV: Loans with Characteristics Associated with Increased 
Likelihood of Foreclosure: 

We analyzed CoreLogic data to identify the number and percentage of 
prime and subprime loans with characteristics associated with an 
increased likelihood of foreclosure in June 2009, 2010, and 2011. 
Specifically, we analyzed loans with the following characteristics 
that we identified as being associated with an increased likelihood of 
foreclosure: 

* delinquency of 60 days or more; 

* current loan-to-value (LTV) ratio of 125 percent or higher; 

* local area unemployment of 10 percent or higher and current LTV of 
125 percent or higher; 

* mortgage interest rate that is 1.5 percentage points or 150 basis 
points above market rate; 

* origination credit score of 619 or below; and: 

* origination LTV of 100 percent or greater. 

We analyzed the volume of prime and subprime loans with each 
characteristic as of June 2009, 2010, and 2011. In addition, we 
evaluated these characteristics by performance, investor (prime loans 
only), loan type (prime loans only), and product type at origination. 
Finally, we assessed the extent to which loans had multiple 
characteristics and the prevalence of overlap among characteristics. 
For a detailed description of our analysis, please see appendix I. 

Table 5: Number and Percentage of Prime Loans with Characteristics 
Associated with Increased Likelihood of Foreclosure, June 2009 through 
June 2011: 

Date: June 2009;
Delinquent 60 days or more: Number: 1,439,054; 
Delinquent 60 days or more: Percentage: 6%; 
Current LTV 125 percent or higher: Number: 1,339,214; 
Current LTV 125 percent or higher: Percentage: 6%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Number: 846,113; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Percentage: 4%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Number: 2,955,001; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Percentage: 13%; 
Origination credit score of 619 or below: Number: 1,402,229; 
Origination credit score of 619 or below: Percentage: 6%; 
Origination LTV of 100 percent or higher: Number: 1,346,726; 
Origination LTV of 100 percent or higher: Percentage: 6%. 

Date: June 2010; 
Delinquent 60 days or more: Number: 1,801,816; 
Delinquent 60 days or more: Percentage: 8%; 
Current LTV 125 percent or higher: Number: 1,141,927; 
Current LTV 125 percent or higher: Percentage: 5%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Number: 871,140; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Percentage: 4%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Number: 3,229,644; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Percentage: 14%; 
Origination credit score of 619 or below: Number: 1,300,627; 
Origination credit score of 619 or below: Percentage: 6%; 
Origination LTV of 100 percent or higher: Number: 1,427,912; 
Origination LTV of 100 percent or higher: Percentage: 6%. 

Date: June 2011; 
Delinquent 60 days or more: Number: 1,583,498; 
Delinquent 60 days or more: Percentage: 7%; 
Current LTV 125 percent or higher: Number: 1,313,108; 
Current LTV 125 percent or higher: Percentage: 6%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Number: 880,509; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Percentage: 4%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Number: 2,850,977; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Percentage: 12%; 
Origination credit score of 619 or below: Number: 1,189,051; 
Origination credit score of 619 or below: Percentage: 5%; 
Origination LTV of 100 percent or higher: Number: 1,448,479; 
Origination LTV of 100 percent or higher: Percentage: 6%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Loans may have more than one characteristic. 

[End of table] 

Table 5: Number and Percentage of Subprime Loans with Characteristics 
Associated with Increased Likelihood of Foreclosure, June 2009 through 
June 2011: 

Date: June 2009; 
Delinquent 60 days or more: Number: 361,809; 
Delinquent 60 days or more: Percentage: 35%; 
Current LTV 125 percent or higher: Number: 166,495; 
Current LTV 125 percent or higher: Percentage: 16%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Number: 104,209; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Percentage: 10%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Number: 682,461; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Percentage: 66%; 
Origination credit score of 619 or below: Number: 541,995; 
Origination credit score of 619 or below: Percentage: 53%; 
Origination LTV of 100 percent or higher: Number: 95,946; 
Origination LTV of 100 percent or higher: Percentage: 9%. 

Date: June 2010; 
Delinquent 60 days or more: Number: 355,769; 
Delinquent 60 days or more: Percentage: 39%; 
Current LTV 125 percent or higher: Number: 144,572; 
Current LTV 125 percent or higher: Percentage: 16%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Number: 108,023; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Percentage: 12%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Number: 467,794; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Percentage: 51%; 
Origination credit score of 619 or below: Number: 487,183; 
Origination credit score of 619 or below: Percentage: 53%; 
Origination LTV of 100 percent or higher: Number: 81,236; 
Origination LTV of 100 percent or higher: Percentage: 9%. 

Date: June 2011; 
Delinquent 60 days or more: Number: 312,392; 
Delinquent 60 days or more: Percentage: 38%; 
Current LTV 125 percent or higher: Number: 163,920; 
Current LTV 125 percent or higher: Percentage: 20%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Number: 109,394; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: Percentage: 13%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Number: 276,603; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: Percentage: 34%; 
Origination credit score of 619 or below: Number: 443,315; 
Origination credit score of 619 or below: Percentage: 54%; 
Origination LTV of 100 percent or higher: Number: 69,564; 
Origination LTV of 100 percent or higher: Percentage: 8%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Loans may have more than one characteristic. 

[End of table] 

Table 6: Percentage of Prime Loans by Performance Status for All Loans 
and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Performance: Current; 
All loans: 91%; 
Delinquent 60 days or more: n/a; 
Current LTV 125 percent or higher: 63%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 63%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 77%; 
Origination credit score of 619 or below: 68%; 
Origination LTV of 100 percent or higher: 82%. 

Performance: 30 to 59 days delinquent; 
All loans: 3%; 
Delinquent 60 days or more: n/a; 
Current LTV 125 percent or higher: 5%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 4%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 5%; 
Origination credit score of 619 or below: 10%; 
Origination LTV of 100 percent or higher: 5%. 

Performance: 60 to 89 days delinquent; 
All loans: 1%; 
Delinquent 60 days or more: 14%; 
Current LTV 125 percent or higher: 2%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 2%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 2%; 
Origination credit score of 619 or below: 4%; 
Origination LTV of 100 percent or higher: 2%. 

Performance: 90 days or more delinquent; 
All loans: 3%; 
Delinquent 60 days or more: 43%; 
Current LTV 125 percent or higher: 14%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 13%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 7%; 
Origination credit score of 619 or below: 10%; 
Origination LTV of 100 percent or higher: 6%. 

Performance: In foreclosure; 
All loans: 3%; 
Delinquent 60 days or more: 43%; 
Current LTV 125 percent or higher: 16%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 17%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 9%; 
Origination credit score of 619 or below: 7%; 
Origination LTV of 100 percent or higher: 6%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Notes: Percentages may not add up to 100 percent due to rounding; 
n/a = not applicable. 

[End of table] 

Table 7: Percentage of Subprime Loans by Performance Status for All 
Loans and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Performance: Current; 
All loans: 53%; 
Delinquent 60 days or more: n/a; 
Current LTV 125 percent or higher: 36%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 36%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 42%; 
Origination credit score of 619 or below: 47%; 
Origination LTV of 100 percent or higher: 50%. 

Performance: 30 to 59 days delinquent; 
All loans: 8%; 
Delinquent 60 days or more: n/a; 
Current LTV 125 percent or higher: 7%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 7%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 8%; 
Origination credit score of 619 or below: 10%; 
Origination LTV of 100 percent or higher: 9%. 

Performance: 60 to 89 days delinquent; 
All loans: 4%; 
Delinquent 60 days or more: 10%; 
Current LTV 125 percent or higher: 4%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 3%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 3%; 
Origination credit score of 619 or below: 5%; 
Origination LTV of 100 percent or higher: 4%. 

Performance: 90 days or more delinquent; 
All loans: 18%; 
Delinquent 60 days or more: 46%; 
Current LTV 125 percent or higher: 26%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 26%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 22%; 
Origination credit score of 619 or below: 20%; 
Origination LTV of 100 percent or higher: 18%. 

Performance: In foreclosure; 
All loans: 17%; 
Delinquent 60 days or more: 44%; 
Current LTV 125 percent or higher: 27%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 28%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 24%; 
Origination credit score of 619 or below: 18%; 
Origination LTV of 100 percent or higher: 18%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Notes: Percentages may not add up to 100 percent due to rounding; 
n/a = not applicable. 

[End of table] 

Table 8: Percentage of Prime Loans by Investor for All Loans and 
Characteristics Associated with Increased Likelihood of Foreclosure, 
June 2011: 

Investor: Enterprises; 
All loans: 66%; 
Delinquent 60 days or more: 45%; 
Current LTV 125 percent or higher: 52%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 53%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 66%; 
Origination credit score of 619 or below: 33%; 
Origination LTV of 100 percent or higher: 30%. 

Investor: Ginnie Mae; 
All loans: 19%; 
Delinquent 60 days or more: 10%; 
Current LTV 125 percent or higher: 12%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 10%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 13%; 
Origination credit score of 619 or below: 42%; 
Origination LTV of 100 percent or higher: 53%. 

Investor: Portfolio; 
All loans: 5%; 
Delinquent 60 days or more: 19%; 
Current LTV 125 percent or higher: 11%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 10%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 7%; 
Origination credit score of 619 or below: 16%; 
Origination LTV of 100 percent or higher: 9%. 

Investor: Securitized other; 
All loans: 6%; 
Delinquent 60 days or more: 19%; 
Current LTV 125 percent or higher: 18%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 19%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 9%; 
Origination credit score of 619 or below: 6%; 
Origination LTV of 100 percent or higher: 4%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages do not add up to 100 percent because of additional 
investor types not included in this description. 

[End of table] 

Table 9: Percentage of Prime Loans by Loan Type for All Loans and 
Characteristics Associated with Increased Likelihood of Foreclosure, 
June 2011: 

Loan type: Conventional; 
All loans: 78%; 
Delinquent 60 days or more: 73%; 
Current LTV 125 percent or higher: 83%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 86%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 85%; 
Origination credit score of 619 or below: 42%; 
Origination LTV of 100 percent or higher: 44%. 

Loan type: FHA; 
All loans: 17%; 
Delinquent 60 days or more: 23%; 
Current LTV 125 percent or higher: 14%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 12%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 13%; 
Origination credit score of 619 or below: 51%; 
Origination LTV of 100 percent or higher: 12%. 

Loan type: VA; 
All loans: 3%; 
Delinquent 60 days or more: 3%; 
Current LTV 125 percent or higher: 2%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 2%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 1%; 
Origination credit score of 619 or below: 6%; 
Origination LTV of 100 percent or higher: 35%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages do not add up to 100 percent because of additional 
loan types not included in this description. 

[End of table] 

Table 10: Percentage of Prime Loans by Loan Product Type for All Loans 
and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Loan product: Fixed; 
All loans: 90%; 
Delinquent 60 days or more: 76%; 
Current LTV 125 percent or higher: 69%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 67%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 86%; 
Origination credit score of 619 or below: 94%; 
Origination LTV of 100 percent or higher: 93%. 

Loan product: ARM; 
All loans: 5%; 
Delinquent 60 days or more: 12%; 
Current LTV 125 percent or higher: 17%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 17%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 5%; 
Origination credit score of 619 or below: 4%; 
Origination LTV of 100 percent or higher: 6%. 

Loan product: Hybrid; 
All loans: 5%; 
Delinquent 60 days or more: 12%; 
Current LTV 125 percent or higher: 15%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 16%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 8%; 
Origination credit score of 619 or below: 2%; 
Origination LTV of 100 percent or higher: 1%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages may not add up to 100 percent because of additional 
product types not included in this description. 

[End of table] 

Table 11: Percentage of Subprime Loans by Loan Product Type for All 
Loans and Characteristics Associated with Increased Likelihood of 
Foreclosure, June 2011: 

Loan product: Fixed; 
All loans: 60%; 
Delinquent 60 days or more: 46%; 
Current LTV 125 percent or higher: 46%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 46%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 58%; 
Origination credit score of 619 or below: 56%; 
Origination LTV of 100 percent or higher: 61%. 

Loan product: ARM; 
All loans: 19%; 
Delinquent 60 days or more: 23%; 
Current LTV 125 percent or higher: 26%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 25%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 17%; 
Origination credit score of 619 or below: 21%; 
Origination LTV of 100 percent or higher: 26%. 

Loan product: Hybrid; 
All loans: 14%; 
Delinquent 60 days or more: 23%; 
Current LTV 125 percent or higher: 22%; 
Local area unemployment of 10 percent or greater and current LTV of 
125 percent or higher: 23%; 
Mortgage interest rate that is 1.5 percentage points or higher above 
market rate: 19%; 
Origination credit score of 619 or below: 17%; 
Origination LTV of 100 percent or higher: 11%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages do not add up to 100 percent because of additional 
product types not included in this description. 

[End of table] 

Table 12: Percentage of Prime and Subprime Loans with Characteristics 
Associated with Increased Likelihood of Foreclosure by Number of 
Characteristics per Loan, June 2011: 

Number of characteristics: One; 
Prime: 67%; 
Subprime: 40%. 

Number of characteristics: Two; 
Prime: 21%; 
Subprime: 33%. 

Number of characteristics: Three; 
Prime: 9%; 
Subprime: 18%. 

Number of characteristics: Four; 
Prime: 3%; 
Subprime: 7%. 

Number of characteristics: Five; 
Prime: 0%; 
Subprime: 3%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: We considered a loan with either or both an origination credit 
score of 619 or less or an origination LTV score of 100 percent or 
higher to have one characteristic--that is, an origination 
characteristic--associated with an increased likelihood of foreclosure. 

[End of table] 

Table 13: Percentage of Prime and Subprime Loans Delinquent 60 Days or 
More without and with Additional Characteristics Associated with an 
Increased Likelihood of Foreclosure, by Characteristic, June 2011: 

Loans delinquent 60 days or more only; 
Prime: 39%; 
Subprime: 14%. 

Loans delinquent 60 days or more with additional characteristics: 

Current LTV 125 percent or higher; 
Prime: 27%; 
Subprime: 30%. 

Local area unemployment 10 percent or greater and current LTV 125 
percent or higher; 
Prime: 18%; 
Subprime: 20%. 

Mortgage interest rate that is 1.5 percentage points or higher above 
market rate; 
Prime: 33%; 
Subprime: 44%. 

Origination credit score of 619 or below; 
Prime: 16%; 
Subprime: 60%. 

Origination LTV 100 percent or higher; 
Prime: 12%; 
Subprime: 9%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages will not add up to 100 percent as loans may have 
more than one additional characteristic. 

[End of table] 

Table 14: Percentage of Prime and Subprime Loans with Current LTV 125 
Percent or Higher without and with Additional Characteristics 
Associated with an Increased Likelihood of Foreclosure, by 
Characteristic, June 2011: 

Loans with current LTV 125 percent or higher only; 
Prime: 11%; 
Subprime: 4%. 

Loans with current LTV 125 percent or higher with additional 
characteristics: 

Delinquent 60 days or more; 
Prime: 32%; 
Subprime: 57%. 

Local area unemployment 10 percent or greater and current LTV 125 
percent or higher; 
Prime: 67%; 
Subprime: 67%. 

Mortgage interest rate that is 1.5 percentage points or higher above 
market rate; 
Prime: 34%; 
Subprime: 40%. 

Origination credit score of 619 or below; 
Prime: 8%; 
Subprime: 52%. 

Origination LTV 100 percent or higher; 
Prime: 16%; 
Subprime: 14%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac Primary Mortgage 
Market Survey. 

Note: Percentages will not add up to 100 percent because loans may 
have more than one additional characteristic. 

[End of table] 

Table 15: Percentage of Prime and Subprime Loans with Local Area 
Unemployment of 10 Percent or Greater and Current LTV of 125 Percent 
or Higher without and with Additional Characteristics Associated with 
an Increased Likelihood of Foreclosure, by Characteristic, June 2011: 

Loans with local area unemployment of 10 percent or greater and 
current LTV of 125 percent or higher only; 
Prime: 40%; 
Subprime: 14%. 

Loans with local area unemployment of 10 percent or greater and 
current LTV of 125 percent or higher with additional characteristics?: 

Delinquent 60 days or greater; 
Prime: 33%; 
Subprime: 58%. 

Mortgage interest rate that is 1.5 percentage points or higher above 
market rate; 
Prime: 33%; 
Subprime: 40%. 

Origination credit score of 619 or below; 
Prime: 7%; 
Subprime: 52%. 

Origination LTV 100 percent or higher; 
Prime: 12%; 
Subprime: 10%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages will not add up to 100 percent because loans may 
have more than one additional characteristic. 

[End of table] 

Table 16: Percentage of Prime and Subprime Loans with Mortgage 
Interest Rate That Is 1.5 Percentage Points or Higher above Market 
Rate without and with Additional Characteristics Associated with an 
Increased Likelihood of Foreclosure, by Characteristic, June 2011: 

Loans with mortgage interest rate that is 1.5 percentage points or 
higher above market rate only; 
Prime: 61%; 
Subprime: 17%. 

Loans with mortgage interest rate that is 1.5 percentage points or 
higher above market rate with additional characteristics: 

Delinquent 60 days or greater; 
Prime: 18%; 
Subprime: 50%. 

Current LTV 125 percent or higher; 
Prime: 16%; 
Subprime: 24%. 

Local area unemployment 10 percent or greater and current LTV 125 
percent or higher; 
Prime: 10%; 
Subprime: 16%. 

Origination credit score of 619 or below; 
Prime: 10%; 
Subprime: 58%. 

Origination LTV 100 percent or higher; 
Prime: 9%; 
Subprime: 8%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages will not add up to 100 percent because loans may 
have more than one additional characteristic. 

[End of table] 

Table 17: Percentage of Prime and Subprime Loans with an Origination 
Credit Score of 619 or below without and with Additional 
Characteristics Associated with an Increased Likelihood of 
Foreclosure, by Characteristic, June 2011: 

Loans with an origination credit score of 619 or below only; 
Prime: 51%; 
Subprime: 32%. 

Loans with an origination credit score of 619 or below with additional 
characteristics: 

Delinquent 60 days or greater; 
Prime: 21%; 
Subprime: 43%. 

Current LTV 125 percent or higher; 
Prime: 9%; 
Subprime: 19%. 

Local area unemployment 10 percent or greater and current LTV 125 
percent or higher; 
Prime: 5%; 
Subprime: 13%. 

Mortgage interest rate that is 1.5 percentage points or higher above 
market rate; 
Prime: 24%; 
Subprime: 36%. 

Origination LTV 100 percent or higher; 
Prime: 13%; 
Subprime: 8%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages will not add up to 100 percent because loans may 
have more than one additional characteristic. 

[End of table] 

Table 18: Percentage of Prime and Subprime Loans with Origination LTV 
of 100 Percent or Higher without and with Additional Characteristics 
Associated with an Increased Likelihood of Foreclosure, by 
Characteristic, June 2011: 

Loans with origination LTV of 100 percent or higher only; 
Prime: 62%; 
Subprime: 19%. 

Loans with origination LTV of 100 percent or higher with additional 
characteristics: 

Delinquent 60 days or greater; 
Prime: 13%; 
Subprime: 41%. 

Current LTV 125 percent or higher; 
Prime: 14%; 
Subprime: 33%. 

Local area unemployment 10 percent or greater and current LTV 125 
percent or higher; 
Prime: 7%; 
Subprime: 16%. 

Mortgage interest rate that is 1.5 percentage point or higher above 
market rate; 
Prime: 17%; 
Subprime: 31%. 

Origination credit score of 619 or below; 
Prime: 11%; 
Subprime: 48%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Freddie Mac's Primary Mortgage 
Market Survey. 

Note: Percentages will not add up to 100 percent because loans may 
have more than one additional characteristic. 

[End of table] 

[End of section] 

Appendix V: Description of GAO's Econometric Analysis of Redefault of 
Modified Loans: 

This appendix provides (1) a summary of the characteristics of loans 
in the CoreLogic proprietary loan-level servicing database that we 
used in our econometric analysis of loans that redefaulted (became 90 
days or more delinquent or in foreclosure) 6 months after receiving 
loan modification actions and a comparison of the characteristics of 
loans in the CoreLogic data set and Treasury's Home Affordable 
Modification Program (HAMP) data set, and (2) the results of our 
econometric analysis of the relationship between redefault rates and 
modification actions, controlling for several observable borrower and 
loan characteristics.[Footnote 123] 

We used the CoreLogic database to analyze loans that had been modified 
under a variety of programs, including proprietary programs and 
federal programs, such as loans modified through the Department of the 
Treasury's HAMP. In addition, we analyzed information from a Treasury 
database that contained information only on loans that were considered 
for or received HAMP loan modifications. Although the CoreLogic data 
set does not include data from all servicers, because it covers a 
significant portion of the mortgage market, we used it to approximate 
the universe of loans. The HAMP data set includes loans that had 
initiated trial modifications and loans that had converted to 
permanent modifications.[Footnote 124] For our analysis of HAMP data, 
our redefault rate is only for permanent modifications. For the 
CoreLogic data, we could not distinguish between trial and permanent 
modifications. 

Using the above data, we described the borrower and loan 
characteristics of modifications from the universe of loans 
represented in the CoreLogic database and loans in the HAMP data set. 
We compared differences between them, focusing on the differences in 
borrower and loan characteristics, and in loan performance. We also 
used an econometric analysis to examine the characteristics of 
borrowers and loans that redefaulted postmodification. First, we 
looked at the effectiveness of different modification actions (e.g. 
interest rate reductions, term extensions, loan balance reductions) in 
reducing redefaults. Second, we compared the effectiveness of HAMP 
modifications and the universe of modifications identified in the 
CoreLogic data in reducing redefaults. Third, we examined whether a 
relationship existed between monthly payment reductions and redefault 
rates. Finally, we looked at the effect of borrower and loan 
characteristics (such as the delinquency status of the borrower prior 
to receiving loan modification and negative home equity) on redefault 
rates. 

Data Used: 

The CoreLogic database contains loan-level information on mortgage 
servicing. According to CoreLogic officials, it covers approximately 
65 to 70 percent of the prime loans and about 50 percent of the 
subprime loans in the U.S. mortgage market. The database contains 
detailed information on the characteristics of purchase and refinance 
mortgages. We used these data to represent the universe of loans that 
received modification actions between January 2009 and December 2010. 
We constructed data for loans that had aged at least 6, 12, or 18 
months since modification. Although a loan could receive multiple 
modification actions over time, we recorded each modification action 
for the same loan as a separate loan.[Footnote 125] The data contain 
static and dynamic monthly data files. The static data fields are 
populated as of loan origination and include variables such as the 
loan purpose and product type.[Footnote 126] This is supplemented by 
monthly data fields ("transactional" data) that reflect the current 
loan terms (such as interest rate) and loan performance. The CoreLogic 
database has limitations, including the lack of data on some important 
variables, such as the type of modification action and FICO credit 
scores at the time of loan modification. Because this data set did not 
contain direct information about the presence of modifications, we 
developed a set of algorithms to infer if the loan had been modified. 
[Footnote 127] In addition, the CoreLogic database has incomplete 
information on key variables, such as second-liens and loan investor 
or ownership. We explicitly excluded from the analysis mortgages with 
certain characteristics, including loans that were paid off or in real 
estate owned (REO) status; liens other than first-liens; loans made 
for unknown purposes or purposes other than purchase or refinancing; 
loans with missing or invalid data on the underlying property type; 
loans for multifamily dwellings with five or more units; loans for 
mixed-use properties; and loans for commercial units.[Footnote 128] 
For computational tractability, we used a 15-percent random sample of 
the CoreLogic database. The data comprise loans modified between the 
first quarter of 2009 and the fourth quarter of 2010. The sample we 
used for the analysis generally contained more than 90,000 loans that 
had redefaulted--that is, were 90 days or more delinquent or in 
foreclosure--within 6 months of the modification after using an 
algorithm to identify loans that received modifications, using several 
filters, and excluding missing observations.[Footnote 129] Because of 
limitations in the coverage and completeness of the CoreLogic 
database, our analysis may not be fully representative of the mortgage 
market as whole. Nonetheless, we have determined that the data were 
sufficiently reliable for the purposes of our study. 

The second database we used contained information from servicers that 
participate in HAMP.[Footnote 130] These servicers are required to 
report data at the start of the trial modification period, during the 
trial period, during conversion to a permanent modification, and 
monthly after the conversion to a permanent modification. Through the 
fourth quarter of 2010, 15 large servicers held 85 percent of the 
loans, and the rest of the loans were serviced by a few hundred small 
servicers.[Footnote 131] Table 19 contains a complete list of 
variables from the CoreLogic and HAMP databases. 

Table 19: List of Variables from CoreLogic and HAMP Databases: 

Modification outcome: 

Variable (unit used): Redefault in 6 months (%); 
Definition: Modified loan becomes 90 or more days past due (dpd) or in 
foreclosure within 6 months; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): Redefault in 12 months (%); 
Definition: Modified loan becomes 90 or more days past due (dpd) or in 
foreclosure within 12 months; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): Redefault in 18 months (%); 
Definition: Modified loan becomes 90 or more days past due (dpd) or in 
foreclosure within 18 months; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Modification actions: 

Variable (unit used): Payment change (%)[A]; 
Definition: Percentage change in monthly payment of principal & 
interest; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PAYMENT DECREASE: <10%; 
Definition: Payment reduction is less than10%; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PAYMENT DECREASE: 10% to 19%; 
Definition: Payment reduction is between 10% and 19%; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PAYMENT DECREASE: 20% to 29%; 
Definition: Payment reduction is between 20% and 29%; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PAYMENT DECREASE: 30% to 39%; 
Definition: Payment reduction is between 30% and 39%; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PAYMENT DECREASE: 40% to 49%; 
Definition: Payment reduction is between 40% and 49%; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PAYMENT DECREASE: 50% to 59%; 
Definition: Payment reduction is between 50% and 59%; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PAYMENT DECREASE: 60% or more; 
Definition: Payment reduction is 60% or higher; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): RATE CHANGE (bps)[B]; 
Definition: Change in interest rate (bps); 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): Balance reduction (%)[C]; 
Definition: Percentage decrease in loan balance through forgiveness 
and/or forbearance; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): Principal forgiveness (%)[D]; 
Definition: Percentage decrease in loan balance through forgiveness; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): Principal forbearance (%)[E]; 
Definition: Percentage decrease in loan balance through forbearance; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): Capitalization (%)[F]; 
Definition: Percentage increase in loan balance through capitalization; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): TERM CHANGE (months)[G]; 
Definition: Change in loan term; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Borrower and loan characteristics at modification: 

Variable (unit used): CURRENT, AT MOD; 
Definition: Loan is current at modification, less than 30 days past 
due; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): DPD: 30, AT MOD; 
Definition: Loan is 30 to 59 days past due at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): DPD: 60, AT MOD; 
Definition: Loan is 60 to 89 days past due at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): DPD: 90, AT MOD; 
Definition: Loan is 90 days or more past due at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): DPD: FCL, AT MOD; 
Definition: Loan is in foreclosure at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): FICO CREDIT SCORE, AT MOD; 
Definition: FICO credit score at modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 350 to <550, AT MOD; 
Definition: FICO greater than or equal to 350 and less than 550 at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 550 to <580, AT MOD; 
Definition: FICO greater than or equal to 550 and less than 580 at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 580 to <620, AT MOD; 
Definition: FICO greater than or equal to 580 and less than 620 at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 620 to <660, AT MOD; 
Definition: FICO greater than or equal to 620 and less than 660 at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 660 to <680, AT MOD; 
Definition: FICO greater than or equal to 660 and less than 680 at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 680 to <700, AT MOD; 
Definition: FICO greater than or equal to 680 and less than 700 at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 700 to <750, AT MOD; 
Definition: FICO greater than or equal to 700 and less than 750 at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): FICO: 750, AT MOD; 
Definition: FICO greater than or equal to 750 at modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): CURRENT LTV (CLTV), AT MOD (%)[H]; 
Definition: Current loan-to-value (CLTV) ratio at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CLTV: 10 to <80 , AT MOD; 
Definition: CLTV is greater than or equal to 10% and less than 80% at 
modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CLTV: 80 to <95, AT MOD; 
Definition: CLTV is greater than or equal to 80% and less than 95% at 
modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CLTV: 95 to <100, AT MOD; 
Definition: CLTV is greater than or equal to 95% and less than 100% at 
modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CLTV: 100 to <115, AT MOD; 
Definition: CLTV is greater than or equal to 100% and less than 115% 
at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CLTV: 115 to <125, AT MOD; 
Definition: CLTV is greater than or equal to 115% and less than 125% 
at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CLTV: 125 to <150, AT MOD; 
Definition: CLTV is greater than or equal to 125% and less than 150% 
at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CLTV: 150, AT MOD; 
Definition: CLTV greater than or equal to 150% at modification; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE, BACKEND, AT MOD (%)[H]; 
Definition: Housing backend debt-to-income ratio (DTIBE), at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE: 30 to <35, AT MOD; 
Definition: DTIBE is greater than or equal to 30% and less than 35% at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE: 35 to <40, AT MOD; 
Definition: DTIBE is greater than or equal to 35% and less than 40% at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE: 40 to <45, AT MOD; 
Definition: DTIBE is greater than or equal to 40% and less than 45% at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE: 45 to <50, AT MOD; 
Definition: DTIBE is greater than or equal to 45% and less than 50% at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE: 50 to <55, AT MOD; 
Definition: DTIBE is greater than or equal to 50% and less than 55% at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE: 55 to <65, AT MOD; 
Definition: DTIBE is greater than or equal to 55% and less than 65% at 
modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): DTIBE: 65, AT MOD; 
Definition: DTIBE is greater than or equal to 65% at modification; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): HOUSE PRICES (% CHG)[I]; 
Definition: Percentage change in house prices after modification, zip 
code level; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CHG IN UNEMP RATE (%)[J]; 
Definition: Change in unemployment rate after modification, county 
level; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): RATE, AT MOD (bps); 
Definition: Interest rate at modification (basis points); 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): TRIAL LENGTH 6 MONTHS; 
Definition: If trial period plan is 6 months or more; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Variable (unit used): MOD REQUIRES PMI; 
Definition: If modification requires private mortgage insurance; 
CoreLogic data: [Empty]; 
HAMP data: [Check]. 

Loan modification start: 

Variable (unit used): MOD STARTED, 2009Q1; 
Definition: Modification started in 2009 Q1; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): MOD STARTED, 2009Q2; 
Definition: Modification started in 2009 Q2; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): MOD STARTED, 2009Q3; 
Definition: Modification started in 2009 Q3; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): MOD STARTED, 2009Q4; 
Definition: Modification started in 2009 Q4; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): MOD STARTED, 2010Q1; 
Definition: Modification started in 2010 Q1; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): MOD STARTED, 2010Q2; 
Definition: Modification started in 2010 Q2; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): MOD STARTED, 2010Q3; 
Definition: Modification started in 2010 Q3; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): MOD STARTED, 2010Q4; 
Definition: Modification started in 2010 Q4; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Borrower and loan characteristics at origination: 

Variable (unit used): FICO CREDIT SCORE, AT ORIGN; 
Definition: Fair Isaac Corporation (FICO) credit score at loan 
origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 350 to <550, AT ORIGN; 
Definition: FICO greater than or equal to 350 and less than 550 at 
loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 550 to <580, AT ORIGN; 
Definition: FICO greater than or equal to 550 and less than 580 at 
loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 580 to <620, AT ORIGN; 
Definition: FICO greater than or equal to 580 and less than 620 at 
loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 620 to <660, AT ORIGN; 
Definition: FICO greater than or equal to 620 and less than 660 at 
loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 660 to <680, AT ORIGN; 
Definition: FICO greater than or equal to 660 and less than 680 at 
loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 680 to <700, AT ORIGN; 
Definition: FICO greater than or equal to 680 and less than 700 at 
loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 700 to <750, AT ORIGN; 
Definition: FICO greater than or equal to 700 and less than 750 at 
loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FICO: 750, AT ORIGN; 
Definition: FICO greater than or equal to 750 at loan origination; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): LTV, AT ORIGN (%)[H]; 
Definition: Loan-to-value (LTV) ratio at origination; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): LTV: 10 to <70, AT ORIGN; 
Definition: LTV greater than or equal to 10% and less than 70% at 
origination; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): LTV: 70 to <80, AT ORIGN; 
Definition: LTV greater than or equal to 70% and less than 80% at 
origination; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): LTV: 80, AT ORIGN; 
Definition: LTV equal to 80% at origination; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): LTV: 81 to <90, AT ORIGN; 
Definition: LTV greater than 80% and less than 90% at origination; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): LTV: 90 to <100, AT ORIGN; 
Definition: LTV greater than or equal to 90% and less than 100% at 
origination; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): LTV: 100, AT ORIGN; 
Definition: LTV greater than or equal to 100% at origination; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): RATE, AT ORIGN (bps); 
Definition: Interest rate at origination (basis points); 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): LOAN BALANCE, AT ORIGN ($); 
Definition: Loan balance at origination, in current dollars; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Other: product characteristics: 

Variable (unit used): INVESTOR: ENTERPRISES; 
Definition: If loan is owned by government-sponsored enterprises 
(Fannie Mae or Freddie Mac); 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): INVESTOR: PRIV-LABEL SEC (PLS); 
Definition: If loan is owned by non-agency private investors; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): INVESTOR: PORTFOLIO; 
Definition: If loan is owned by lender; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): PRIME (vs. SUBPRIME); 
Definition: Prime loan = 1, subprime loan = 0; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): ARM (vs. FIXED RATE); 
Definition: Adjustable rate (ARM) = 1, Fixed rate (FRM) = 0; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): SINGLE FAMILY; 
Definition: Single family housing units; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CONDO; 
Definition: Condominiums, including PUDs (planned unit developments); 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): OTHER HOUSING; 
Definition: Other housing units, including cooperatives; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): CONVENTIONAL; 
Definition: Conventional loans (nongovernment owned or guaranteed 
loans); 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): FHA; 
Definition: Federal Housing Administration (FHA) loans; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): VA; 
Definition: Veterans Affairs (VA); 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): OWNER-OCCUPIED; 
Definition: If owner-occupied housing versus a nonowner occupied; 
CoreLogic data: [Check]; 
HAMP data: [Check][K]. 

Variable (unit used): PURCHASE; 
Definition: Loans for home purchase; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): REFI: CASH-OUT; 
Definition: Loans for refinance, with cash-out; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): REFI: NO CASH-OUT; 
Definition: Loans for refinance, without cash-out; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): REFI: UNKNOWN; 
Definition: Loans for refinance, reason unknown; 
CoreLogic data: [Check]; 
HAMP data: [Empty]. 

Variable (unit used): Loan origination year; 
Definition: [Empty]; 
CoreLogic data: [Empty]; 
HAMP data: [Empty]. 

Variable (unit used): ORIGINATION YEAR, 2003; 
Definition: Loan originated in 2003 or before; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): ORIGINATION YEAR, 2004; 
Definition: Loan originated in 2004; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): ORIGINATION YEAR, 2005; 
Definition: Loan originated in 2005; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): ORIGINATION YEAR, 2006; 
Definition: Loan originated in 2006; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): ORIGINATION YEAR, 2007; 
Definition: Loan originated in 2007; 
CoreLogic data: [Check]; 
HAMP data: [Check]. 

Variable (unit used): ORIGINATION YEAR, 2008; 
Definition: Loan originated in 2008; 
CoreLogic data: [Check]; 
HAMP data: [Check][L]. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Treasury. 

[A] The payment change is the result of modification actions, 
including, rate reduction, balance reduction (from principal 
forgiveness or principal forbearance), capitalization, and term 
extension. 

[B] This modification action includes a rate reduction. 

[C] This modification action includes a balance reduction. 

[D] This modification action includes principal forgiveness. 

[E] This modification action includes principal forbearance. 

[F] This modification action includes capitalization. 

[G] This modification action includes a term extension. 

[H] The data do not include second liens. 

[I] Housing price data are from CoreLogic. 

[J] Unemployment data are from the Bureau of Labor Statistics. 

[K] All HAMP loans are for owner-occupied housing. 

[L] Includes loans originated on January 1, 2009. 

[End of table] 

We discuss selected key characteristics of the universe of loans in 
the CoreLogic database using the average values of the variables (see 
table 20). Data for all loans are in column A, and prime and subprime 
loans are in columns B and C, respectively. The overall redefault rate 
6 months after modification is 18 percent for all loans: 17 percent 
for prime loans, and 19 percent for subprime loans. Prime loans make 
up 85 percent of the universe of loans in the data set and subprime 
loans 15 percent. Eighty-eight percent of the loans have fixed rates 
(FRM) at origination, and the rest have adjustable rates (ARM). 

The modification actions we identified were generally used in 
combination with other actions, much like the modification actions in 
the OCC Mortgage Metrics database. For loan modifications that include 
interest rate changes, the average change in interest rate is 299 
basis points (bps), or 2.99 percentage points, and 289 bps and 361 bps 
for prime and subprime loans, respectively. In loan modifications, the 
balances decrease with principal forgiveness or principal forbearance 
but increase with capitalization.[Footnote 132] For modifications that 
include balance reductions, the average reduction is 20 percent (20 
percent and 16 percent for prime and subprime loans, respectively). 
The capitalized amounts averaged 6 percent of the balances (6 percent 
and 8 percent for prime and subprime loans, respectively). The average 
increase in loan term used in combination with other modification 
actions is 96 months (95 months for prime loans and 101 months for 
subprime loans). The average reduction in monthly principal and 
interest payments as a result of changes in interest rates, loan 
balances, and loan term from the modifications is 24 percent of the 
payments at modification and amounts over $250. The payment reductions 
are 24 percent and 25 percent for prime and subprime loans, 
respectively. Thus the changes in the modification actions were 
generally larger for subprime loans than for prime loans, implying 
that the modifications helped subprime borrowers the most. 

Table 20: Summary Statistics of Variables Used in Regressions Related 
to Redefault within 6 Months of Modification, Using CoreLogic Data: 

Variable: Modification outcome: 

Variable: REDEFAULT IN 6 MONTHS (%)[A]; 
A. All loans: N: 91614; 
A. All loans: Mean: 18; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 100; 
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 17; 
B. Prime loans: Med: 0; 
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 19; 
C. Subprime loans: Med: 0. 

Modification actions: 

Variable: PAYMENT CHANGE (%);
A. All loans: N: 89814; 
A. All loans: Mean: -24; 
A. All loans: Med: -22; 
A. All loans: Min: -76; 
A. All loans: Max: 21;
B. Prime loans: N: 76871; 
B. Prime loans: Mean: -24; 
B. Prime loans: Med: -22;
C. Subprime loans: N: 12943; 
C. Subprime loans: Mean: -25; 
C. Subprime loans: Med: -21. 

Variable: RATE CHANGE (bps);
A. All loans: N: 80460; 
A. All loans: Mean: -299; 
A. All loans: Med: -288; 
A. All loans: Min: -1500; 
A. All loans: Max: -8;
B. Prime loans: N: 68902; 
B. Prime loans: Mean: -289; 
B. Prime loans: Med: -275;
C. Subprime loans: N: 11558; 
C. Subprime loans: Mean: -361; 
C. Subprime loans: Med: -313. 

Variable: BALANCE REDUCTION (%);
A. All loans: N: 4598; 
A. All loans: Mean: -20; 
A. All loans: Med: -16; 
A. All loans: Min: -93; 
A. All loans: Max: -2;
B. Prime loans: N: 4524; 
B. Prime loans: Mean: -20; 
B. Prime loans: Med: -16;
C. Subprime loans: N: 74; 
C. Subprime loans: Mean: -16; 
C. Subprime loans: Med: -8. 

Variable: CAPITALIZATION (%);
A. All loans: N: 76883; 
A. All loans: Mean: 6; 
A. All loans: Med: 5; 
A. All loans: Min: 0; 
A. All loans: Max: 50;
B. Prime loans: N: 65931; 
B. Prime loans: Mean: 6; 
B. Prime loans: Med: 5;
C. Subprime loans: N: 10952; 
C. Subprime loans: Mean: 8; 
C. Subprime loans: Med: 6. 

Variable: TERM CHANGE (months);
A. All loans: N: 32414; 
A. All loans: Mean: 96; 
A. All loans: Med: 102; 
A. All loans: Min: 5; 
A. All loans: Max: 200;
B. Prime loans: N: 28111; 
B. Prime loans: Mean: 95; 
B. Prime loans: Med: 96;
C. Subprime loans: N: 4303; 
C. Subprime loans: Mean: 101; 
C. Subprime loans: Med: 114. 

Borrower and loan characteristics at modification: 

Variable: CURRENT, AT MOD;
A. All loans: N: 91614; 
A. All loans: Mean: 0.07; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.07; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.12; 
C. Subprime loans: Med: 0. 

Variable: DPD: 30, AT MOD;
A. All loans: N: 91614; 
A. All loans: Mean: 0.04; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.03; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.07; 
C. Subprime loans: Med: 0. 

Variable: DPD: 60, AT MOD;
A. All loans: N: 91614; 
A. All loans: Mean: 0.05; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.05; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.07; 
C. Subprime loans: Med: 0. 

Variable: DPD: 90, AT MOD;
A. All loans: N: 91614; 
A. All loans: Mean: 0.72; 
A. All loans: Med: 1; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.75; 
B. Prime loans: Med: 1;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.54; 
C. Subprime loans: Med: 1. 

Variable: DPD: FCL, AT MOD;
A. All loans: N: 91614; 
A. All loans: Mean: 0.11; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.10; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.20; 
C. Subprime loans: Med: 0. 

Variable: CURRENT LTV (CLTV), AT MOD (%)[B];
A. All loans: N: 91136; 
A. All loans: Mean: 108; 
A. All loans: Med: 105; 
A. All loans: Min: 10; 
A. All loans: Max: 347;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 107; 
B. Prime loans: Med: 105;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 112; 
C. Subprime loans: Med: 107. 

Variable: CLTV: 10 to <80, AT MOD;
A. All loans: N: 91136; 
A. All loans: Mean: 0.17; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 0.18; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 0.15; 
C. Subprime loans: Med: 0. 

Variable: CLTV: 80 to <95, AT MOD;
A. All loans: N: 91136; 
A. All loans: Mean: 0.18; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 0.18; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 0.19; 
C. Subprime loans: Med: 0. 

Variable: CLTV: 95 to <100, AT MOD;
A. All loans: N: 91136; 
A. All loans: Mean: 0.07; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 0.07; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 0.07; 
C. Subprime loans: Med: 0. 

Variable: CLTV: 100 to <115, AT MOD;
A. All loans: N: 91136; 
A. All loans: Mean: 0.21; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 0.21; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 0.20; 
C. Subprime loans: Med: 0. 

Variable: CLTV: 115 to <125, AT MOD;
A. All loans: N: 91136; 
A. All loans: Mean: 0.11; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 0.11; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 0.09; 
C. Subprime loans: Med: 0. 

Variable: CLTV: 125 to <150, AT MOD;
A. All loans: N: 91136; 
A. All loans: Mean: 0.15; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 0.15; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 0.16; 
C. Subprime loans: Med: 0. 

Variable: CLTV: 150, AT MOD;
A. All loans: N: 91136; 
A. All loans: Mean: 0.11; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 77838; 
B. Prime loans: Mean: 0.10; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13298; 
C. Subprime loans: Mean: 0.14; 
C. Subprime loans: Med: 0. 

Variable: HOUSE PRICES (% CHG)[C];
A. All loans: N: 91614; 
A. All loans: Mean: -2.32; 
A. All loans: Med: -2.20; 
A. All loans: Min: -28.92; 
A. All loans: Max: 26.48;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: -2.43; 
B. Prime loans: Med: -2.30;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: -1.7; 
C. Subprime loans: Med: -1.6. 

Variable: CHG IN UNEMP RATE (%)[D];
A. All loans: N: 91614; 
A. All loans: Mean: -0.04; 
A. All loans: Med: -0.07; 
A. All loans: Min: -11.13; 
A. All loans: Max: 12.67;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: -0.08; 
B. Prime loans: Med: -0.08;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.2; 
C. Subprime loans: Med: 0.1. 

Variable: RATE, AT MOD (bps);
A. All loans: N: 91614; 
A. All loans: Mean: 408.32; 
A. All loans: Med: 412.5; 
A. All loans: Min: 0.1; 
A. All loans: Max: 1725;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 391; 
B. Prime loans: Med: 400;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 508; 
C. Subprime loans: Med: 504. 

Loan modification start: 

Variable: MOD STARTED, 2009Q1;
A. All loans: N: 91614; 
A. All loans: Mean: 0.09; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.06; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.24; 
C. Subprime loans: Med: 0. 

Variable: MOD STARTED, 2009Q2;
A. All loans: N: 91614; 
A. All loans: Mean: 0.09; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.08; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.11; 
C. Subprime loans: Med: 0. 

Variable: MOD STARTED, 2009Q3;
A. All loans: N: 91614; 
A. All loans: Mean: 0.07; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.08; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.07; 
C. Subprime loans: Med: 0. 

Variable: MOD STARTED, 2009Q4;
A. All loans: N: 91614; 
A. All loans: Mean: 0.08; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.08; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.06; 
C. Subprime loans: Med: 0. 

Variable: MOD STARTED, 2010Q1;
A. All loans: N: 91614; 
A. All loans: Mean: 0.17; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.17; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.15; 
C. Subprime loans: Med: 0. 

Variable: MOD STARTED, 2010Q2;
A. All loans: N: 91614; 
A. All loans: Mean: 0.19; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.19; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.19; 
C. Subprime loans: Med: 0. 

Variable: MOD STARTED, 2010Q3;
A. All loans: N: 91614; 
A. All loans: Mean: 0.15; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.16; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.12; 
C. Subprime loans: Med: 0. 

Variable: MOD STARTED, 2010Q4;
A. All loans: N: 91614; 
A. All loans: Mean: 0.16; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.17; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.07; 
C. Subprime loans: Med: 0. 

Borrower and loan characteristics at origination: 

Variable: FICO CREDIT SCORE, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 657; 
A. All loans: Med: 658; 
A. All loans: Min: 351; 
A. All loans: Max: 888;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 666; 
B. Prime loans: Med: 668;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 609; 
C. Subprime loans: Med: 609. 

Variable: FICO: 350 to <550, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.07; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.05; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.17; 
C. Subprime loans: Med: 0. 

Variable: FICO: 550 to <580, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.06; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.05; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.14; 
C. Subprime loans: Med: 0. 

Variable: FICO: 580 to <620, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.15; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.12; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.26; 
C. Subprime loans: Med: 0. 

Variable: FICO: 620 to <660, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.23; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.23; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.25; 
C. Subprime loans: Med: 0. 

Variable: FICO: 660 to <680, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.11; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.12; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.07; 
C. Subprime loans: Med: 0. 

Variable: FICO: 680 to <700, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.11; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.12; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.05; 
C. Subprime loans: Med: 0. 

Variable: FICO: 700 to <750, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.19; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.21; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.05; 
C. Subprime loans: Med: 0. 

Variable: FICO: 750, AT ORIGN;
A. All loans: N: 84669; 
A. All loans: Mean: 0.09; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 71470; 
B. Prime loans: Mean: 0.11; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13199; 
C. Subprime loans: Mean: 0.01; 
C. Subprime loans: Med: 0. 

Variable: LTV, AT ORIGN (%)[B];
A. All loans: N: 91571; 
A. All loans: Mean: 83; 
A. All loans: Med: 80; 
A. All loans: Min: 10; 
A. All loans: Max: 200;
B. Prime loans: N: 78267; 
B. Prime loans: Mean: 83; 
B. Prime loans: Med: 80;
C. Subprime loans: N: 13304; 
C. Subprime loans: Mean: 82; 
C. Subprime loans: Med: 80. 

Variable: LTV: 10 to <70, AT ORIGN;
A. All loans: N: 91566; 
A. All loans: Mean: 0.14; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78262; 
B. Prime loans: Mean: 0.15; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13304; 
C. Subprime loans: Mean: 0.11; 
C. Subprime loans: Med: 0. 

Variable: LTV: 70 to <80, AT ORIGN;
A. All loans: N: 91566; 
A. All loans: Mean: 0.21; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78262; 
B. Prime loans: Mean: 0.21; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13304; 
C. Subprime loans: Mean: 0.20; 
C. Subprime loans: Med: 0. 

Variable: LTV: 80, AT ORIGN;
A. All loans: N: 91566; 
A. All loans: Mean: 0.21; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78262; 
B. Prime loans: Mean: 0.21; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13304; 
C. Subprime loans: Mean: 0.22; 
C. Subprime loans: Med: 0. 

Variable: LTV: 81,to <90, AT ORIGN;
A. All loans: N: 91566; 
A. All loans: Mean: 0.10; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78262; 
B. Prime loans: Mean: 0.08; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13304; 
C. Subprime loans: Mean: 0.19; 
C. Subprime loans: Med: 0. 

Variable: LTV:90 to <100, AT ORIGN;
A. All loans: N: 91566; 
A. All loans: Mean: 0.25; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78262; 
B. Prime loans: Mean: 0.26; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13304; 
C. Subprime loans: Mean: 0.22; 
C. Subprime loans: Med: 0. 

Variable: LTV: 100, AT ORIGN;
A. All loans: N: 91566; 
A. All loans: Mean: 0.09; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78262; 
B. Prime loans: Mean: 0.10; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13304; 
C. Subprime loans: Mean: 0.06; 
C. Subprime loans: Med: 0. 

Variable: RATE, AT ORIGN (bps);
A. All loans: N: 91610; 
A. All loans: Mean: 638; 
A. All loans: Med: 650; 
A. All loans: Min: 1; 
A. All loans: Max: 1755;
B. Prime loans: N: 78299; 
B. Prime loans: Mean: 616; 
B. Prime loans: Med: 638;
C. Subprime loans: N: 13311; 
C. Subprime loans: Mean: 771; 
C. Subprime loans: Med: 765. 

Variable: LOAN BALANCE, AT ORIGN ($);
A. All loans: N: 90507; 
A. All loans: Mean: 218878; 
A. All loans: Med: 189000; 
A. All loans: Min: 25000; 
A. All loans: Max: 729750;
B. Prime loans: N: 77256; 
B. Prime loans: Mean: 222617; 
B. Prime loans: Med: 193500;
C. Subprime loans: N: 13251; 
C. Subprime loans: Mean: 197079; 
C. Subprime loans: Med: 166214. 

Other: product characteristics: 

Variable: INVESTOR: ENTERPRISES[E];
A. All loans: N: 91614; 
A. All loans: Mean: 0.48; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.55; 
B. Prime loans: Med: 1;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.04; 
C. Subprime loans: Med: 0. 

Variable: INVESTOR: PRIV-LABEL SEC (PLS)[E];
A. All loans: N: 91614; 
A. All loans: Mean: 0.18; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.15; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.35; 
C. Subprime loans: Med: 0. 

Variable: INVESTOR: PORTFOLIO[E];
A. All loans: N: 91614; 
A. All loans: Mean: 0.22; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.23; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.20; 
C. Subprime loans: Med: 0. 

Variable: PRIME (vs. SUBPRIME);
A. All loans: N: 91614; 
A. All loans: Mean: 0.85; 
A. All loans: Med: 1; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 1.00; 
B. Prime loans: Med: 1;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.00; 
C. Subprime loans: Med: 0. 

Variable: ARM (vs. FIXED RATE);
A. All loans: N: 91614; 
A. All loans: Mean: 0.12; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.12; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.11; 
C. Subprime loans: Med: 0. 

Variable: SINGLE FAMILY;
A. All loans: N: 91614; 
A. All loans: Mean: 0.80; 
A. All loans: Med: 1; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.78; 
B. Prime loans: Med: 1;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.87; 
C. Subprime loans: Med: 1. 

Variable: CONDO;
A. All loans: N: 91614; 
A. All loans: Mean: 0.16; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.17; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.07; 
C. Subprime loans: Med: 0. 

Variable: OTHER HOUSING;
A. All loans: N: 91614; 
A. All loans: Mean: 0.04; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.04; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.06; 
C. Subprime loans: Med: 0. 

Variable: CONVENTIONAL;
A. All loans: N: 91614; 
A. All loans: Mean: 0.84; 
A. All loans: Med: 1; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.81; 
B. Prime loans: Med: 1;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 1.00; 
C. Subprime loans: Med: 1. 

Variable: FHA;
A. All loans: N: 91614; 
A. All loans: Mean: 0.15; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.18; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.00; 
C. Subprime loans: Med: 0. 

Variable: VA;
A. All loans: N: 91614; 
A. All loans: Mean: 0.01; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.02; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.00; 
C. Subprime loans: Med: 0. 

Variable: OWNER-OCCUPIED;
A. All loans: N: 91614; 
A. All loans: Mean: 0.96; 
A. All loans: Med: 1; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.96; 
B. Prime loans: Med: 1;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.96; 
C. Subprime loans: Med: 1. 

Variable: PURCHASE;
A. All loans: N: 91614; 
A. All loans: Mean: 0.44; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.47; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.28; 
C. Subprime loans: Med: 0. 

Variable: REFI: CASH-OUT;
A. All loans: N: 91614; 
A. All loans: Mean: 0.26; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.26; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.24; 
C. Subprime loans: Med: 0. 

Variable: REFI: NO CASH-OUT;
A. All loans: N: 91614; 
A. All loans: Mean: 0.15; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.17; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.05; 
C. Subprime loans: Med: 0. 

Variable: REFI: UNKNOWN;
A. All loans: N: 91614; 
A. All loans: Mean: 0.14; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.09; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.43; 
C. Subprime loans: Med: 0. 

Loan origination year: 
C. Subprime loans: Med: [Empty]. 

Variable: ORIGINATION YEAR, 2003;
A. All loans: N: 91614; 
A. All loans: Mean: 0.14; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.15; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.10; 
C. Subprime loans: Med: 0. 

Variable: ORIGINATION YEAR, 2004;
A. All loans: N: 91614; 
A. All loans: Mean: 0.08; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.07; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.16; 
C. Subprime loans: Med: 0. 

Variable: ORIGINATION YEAR, 2005;
A. All loans: N: 91614; 
A. All loans: Mean: 0.15; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.13; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.30; 
C. Subprime loans: Med: 0. 

Variable: ORIGINATION YEAR, 2006;
A. All loans: N: 91614; 
A. All loans: Mean: 0.23; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.22; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.26; 
C. Subprime loans: Med: 0. 

Variable: ORIGINATION YEAR, 2007;
A. All loans: N: 91614; 
A. All loans: Mean: 0.30; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.32; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.17; 
C. Subprime loans: Med: 0. 

Variable: ORIGINATION YEAR, 2008;
A. All loans: N: 91614; 
A. All loans: Mean: 0.10; 
A. All loans: Med: 0; 
A. All loans: Min: 0; 
A. All loans: Max: 1;
B. Prime loans: N: 78300; 
B. Prime loans: Mean: 0.11; 
B. Prime loans: Med: 0;
C. Subprime loans: N: 13314; 
C. Subprime loans: Mean: 0.01; 
C. Subprime loans: Med: 0. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
and the Bureau of Labor Statistics. 

[A] Redefault occurs when modified loans become 90 days or more 
delinquent or in foreclosure within 6 months after modification. 

[B] The data do not include second liens. 

[C] Housing price data are from CoreLogic. 

[D] Unemployment data are from the Bureau of Labor Statistics. 

[E] The data have many missing observations, especially for subprime 
loans, so the percentages do not add up to 1. 

[End of table] 

About 83 percent of the modified loans identified in the CoreLogic 
data set were seriously delinquent (at least 90 days past due or in 
foreclosure), including 85 percent for prime and 74 percent of 
subprime loans. Ten percent of prime loans were in foreclosure, 
compared with 20 percent of subprime loans. The CLTV ratios at the 
time of modification were 108 percent overall (107 percent for prime 
loans and 112 percent for subprime loans). These ratios had increased 
since origination--24 percent for prime loans and 30 percent for 
subprime loans.[Footnote 133] House prices continued to decline for 
the 6 months after modifications, falling by about 2 percent, on 
average. The overall FICO credit score at the time of origination is 
657, but scores for prime and subprime loans differed widely (666 and 
609, respectively). The CLTV ratios and FICO scores are consistent 
with the relatively low quality of subprime loans.[Footnote 134] 
Overall, unemployment rates declined by less than 1 percent (among 
prime loans rates decreased by 0.08 percent compared to an increase of 
0.2 percent for subprime loans). 

Many observations are missing data on the loan investor or ownership, 
especially for subprime loans. The majority of the prime loans 
identified are owned or guaranteed by the enterprises, while the 
majority of the subprime loans are private-label securitized (PLS) 
loans. Overall, portfolio loans slightly outnumber PLS loans. About 84 
percent of the prime loans are conventional, with FHA accounting for 
15 percent and VA and other government-guaranteed loans for the 
remaining 1 percent. All subprime loans are conventional. Almost all 
the loans (96 percent) are for owner-occupied housing, and a slight 
majority (55 percent) were for refinancings. The average unpaid 
principal balance for prime loans at the time of origination was 
$222,617, compared with $197,079 for subprime loans. About 67 percent 
and 73 percent of prime loans and subprime loans, respectively, were 
originated between 2005 and 2007. Modifications increased in 2010 
compared to 2009, partly because of HAMP and included a larger share 
of prime loans as the available pool of subprime loans dwindled. 

Comparison of CoreLogic and HAMP Data Sets: 

We compare certain borrower and loan characteristics using comparable 
data from the universe of loans as represented by the CoreLogic data 
and HAMP loans found in the Treasury data. We restricted the CoreLogic 
data to first-lien loans for owner-occupied housing that received 
modifications between the fourth quarter of 2009 and the second 
quarter of 2010, and that received payment reductions.[Footnote 135] 

The HAMP database has certain limitations. The data were sometimes 
missing or questionable, as indicated by the Department of the 
Treasury.[Footnote 136] Also, we constructed the performance history 
of HAMP loans using several monthly databases. Since we did not have 
data for February 2010 and April 2010, we assumed that the 
performances was the same as in the following months, March 2010 and 
May 2010, respectively. We do not expect this assumption to affect our 
results, since redefault is defined as 3 or more consecutive months of 
delinquency.[Footnote 137] We excluded observations if loan 
performance data were missing for any of the months. Generally, we 
believe that the constructed loan performance data become more 
reliable as the number of months since modification increases, as the 
quality of HAMP data has been improving over time. As a result, we 
compare CoreLogic and HAMP loans that are at least 12 months 
postmodification or that have redefaulted within 12 months. We believe 
that the HAMP data we use are sufficiently reliable for our purposes. 

In table 21, the data indicate that the redefault rate is much higher 
for CoreLogic than for HAMP loans (26 percent and 16 percent, 
respectively, 12 months after modification). The HAMP data we use are 
for participants with permanent modifications--those who have 
successfully completed the trial modification. Most of the CoreLogic 
loans were far advanced in their delinquency prior to the 
modification, with about 89 percent 90 days or more delinquent or in 
foreclosure, compared to 61 percent of HAMP loans. The overall changes 
resulting from modification actions were generally largest for HAMP 
loans, which had an average payment reduction of 37 percent, compared 
to 30 percent among CoreLogic loans. The current LTVs were 109 percent 
and 140 percent, respectively, in the CoreLogic and HAMP databases, 
but there was not much difference between the loans at the time of 
origination, when the LTVs were 83 percent and 82 percent, 
respectively. Thus the decline in equity was 26 percent for the 
CoreLogic loans and 58 percent for HAMP loans. The majority of the 
modified loans were originated between 2005 and 2007. 

Table 21: Selected Borrower and Loan Characteristics Related to 
Redefault within 12 Months of Modification, using of CoreLogic and 
HAMP Data: 

Variable: REDEFAULT IN 12 MONTHS (%)[A];
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 26; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 100;
HAMP data: N: 341111; 
HAMP data: Mean: 16; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 100. 

Variable: PAYMENT CHANGE (%);
CoreLogic data: N: 33950; 
CoreLogic data: Mean: -30; 
CoreLogic data: Med: -27; 
CoreLogic data: Min: -76; 
CoreLogic data: Max: 0;
HAMP data: N: 341111; 
HAMP data: Mean: -37; 
HAMP data: Med: -38; 
HAMP data: Min: -80; 
HAMP data: Max: 0. 

Variable: RATE CHANGE (bps);
CoreLogic data: N: 33736; 
CoreLogic data: Mean: -322; 
CoreLogic data: Med: -338; 
CoreLogic data: Min: -1113; 
CoreLogic data: Max: -8;
HAMP data: N: 336312; 
HAMP data: Mean: -399; 
HAMP data: Med: -413; 
HAMP data: Min: -1279; 
HAMP data: Max: 0. 

Variable: BALANCE REDUCTION (%);
CoreLogic data: N: 2183; 
CoreLogic data: Mean: -23; 
CoreLogic data: Med: -18; 
CoreLogic data: Min: -93; 
CoreLogic data: Max: -2;
HAMP data: N: NA; 
HAMP data: Mean: NA; 
HAMP data: Med: NA; 
HAMP data: Min: NA; 
HAMP data: Max: NA. 

Variable: PRINCIPAL FORGIVENESS (%);
CoreLogic data: N: NA; 
CoreLogic data: Mean: NA; 
CoreLogic data: Med: NA; 
CoreLogic data: Min: NA; 
CoreLogic data: Max: NA;
HAMP data: N: 1954; 
HAMP data: Mean: -17; 
HAMP data: Med: -18; 
HAMP data: Min: -76; 
HAMP data: Max: -1. 

Variable: PRINCIPAL FORBEARANCE (%);
CoreLogic data: N: NA; 
CoreLogic data: Mean: NA; 
CoreLogic data: Med: NA; 
CoreLogic data: Min: NA; 
CoreLogic data: Max: NA;
HAMP data: N: 89318; 
HAMP data: Mean: -23; 
HAMP data: Med: -20; 
HAMP data: Min: -90; 
HAMP data: Max: -1. 

Variable: CAPITALIZATION (%);
CoreLogic data: N: 30580; 
CoreLogic data: Mean: 6; 
CoreLogic data: Med: 5; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 50;
HAMP data: N: 336844; 
HAMP data: Mean: 5; 
HAMP data: Med: 4; 
HAMP data: Min: 0; 
HAMP data: Max: 30. 

Variable: TERM CHANGE (months);
CoreLogic data: N: 12521; 
CoreLogic data: Mean: 91; 
CoreLogic data: Med: 86; 
CoreLogic data: Min: 5; 
CoreLogic data: Max: 200;
HAMP data: N: 308608; 
HAMP data: Mean: 37; 
HAMP data: Med: 1; 
HAMP data: Min: -120; 
HAMP data: Max: 240. 

Variable: CURRENT, AT MOD;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.03; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 277332; 
HAMP data: Mean: 0.20; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: DPD: 30, AT MOD;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.02; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 277332; 
HAMP data: Mean: 0.11; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: DPD: 60, AT MOD;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.05; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 277332; 
HAMP data: Mean: 0.09; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: DPD: 90, AT MOD (%);
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.78; 
CoreLogic data: Med: 1; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 277332; 
HAMP data: Mean: 0.56; 
HAMP data: Med: 1; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: DPD: FCL, AT MOD (%);
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.11; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 277332; 
HAMP data: Mean: 0.05; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: CLTV, AT MOD (%);
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 109; 
CoreLogic data: Med: 106; 
CoreLogic data: Min: 10; 
CoreLogic data: Max: 347;
HAMP data: N: 276658; 
HAMP data: Mean: 140; 
HAMP data: Med: 132; 
HAMP data: Min: 7; 
HAMP data: Max: 250. 

Variable: CLTV: 10 to <80, AT MOD;
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 0.16; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 276656; 
HAMP data: Mean: 0.03; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: CLTV: 80 to <95, AT MOD;
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 0.18; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 276656; 
HAMP data: Mean: 0.04; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: CLTV: 95 to <100, AT MOD;
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 0.07; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 276656; 
HAMP data: Mean: 0.03; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: CLTV: 100 to <115, AT MOD;
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 0.22; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 276656; 
HAMP data: Mean: 0.18; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: CLTV: 115 to <125, AT MOD;
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 0.11; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 276656; 
HAMP data: Mean: 0.14; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: CLTV: 125 to <150, AT MOD;
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 0.16; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 276656; 
HAMP data: Mean: 0.22; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: CLTV: 150, AT MOD;
CoreLogic data: N: 34663; 
CoreLogic data: Mean: 0.11; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 276656; 
HAMP data: Mean: 0.36; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: LTV (LTV), AT ORIGN (%);
CoreLogic data: N: 34799; 
CoreLogic data: Mean: 83; 
CoreLogic data: Med: 80; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 200;
HAMP data: N: 264092; 
HAMP data: Mean: 82; 
HAMP data: Med: 80; 
HAMP data: Min: 30; 
HAMP data: Max: 200. 

Variable: INTEREST RATE, AT MOD (bps);
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 353; 
CoreLogic data: Med: 313; 
CoreLogic data: Min: 29; 
CoreLogic data: Max: 1590;
HAMP data: N: 341110; 
HAMP data: Mean: 297; 
HAMP data: Med: 200; 
HAMP data: Min: 200; 
HAMP data: Max: 1249. 

Variable: INTEREST RATE, AT ORIGN (bps);
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 639; 
CoreLogic data: Med: 650; 
CoreLogic data: Min: 1; 
CoreLogic data: Max: 1590;
HAMP data: N: 269859; 
HAMP data: Mean: 666; 
HAMP data: Med: 663; 
HAMP data: Min: 200; 
HAMP data: Max: 1500. 

Variable: UPB, AT ORIGN ($);
CoreLogic data: N: 34489; 
CoreLogic data: Mean: 227487; 
CoreLogic data: Med: 201000; 
CoreLogic data: Min: 25000; 
CoreLogic data: Max: 728000;
HAMP data: N: 278184; 
HAMP data: Mean: 241031; 
HAMP data: Med: 220000; 
HAMP data: Min: 25900; 
HAMP data: Max: 729750. 

Variable: ORIGINATION YEAR, 2003;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.13; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 341111; 
HAMP data: Mean: 0.07; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: ORIGINATION YEAR, 2004;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.07; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 341111; 
HAMP data: Mean: 0.06; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: ORIGINATION YEAR, 2005;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.14; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 341111; 
HAMP data: Mean: 0.17; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: ORIGINATION YEAR, 2006;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.23; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 341111; 
HAMP data: Mean: 0.32; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: ORIGINATION YEAR, 2007;
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.32; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 341111; 
HAMP data: Mean: 0.32; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Variable: ORIGINATION YEAR, 2008[B];
CoreLogic data: N: 34801; 
CoreLogic data: Mean: 0.11; 
CoreLogic data: Med: 0; 
CoreLogic data: Min: 0; 
CoreLogic data: Max: 1;
HAMP data: N: 341111; 
HAMP data: Mean: 0.07; 
HAMP data: Med: 0; 
HAMP data: Min: 0; 
HAMP data: Max: 1. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Treasury. 

Notes: NA = not available. The sample size varies for some variables. 

[A] Redefault occurs when modified loans become 90 days or more 
delinquent or in foreclosure within 12 months after modification. 

[B] The data for HAMP include loans originated on January 1, 2009. 

[End of table] 

Econometric Analysis: 

We discuss below the models we developed and used to estimate the 
likelihood of redefault after modifying the typical loan (using the 
CoreLogic and HAMP databases), and the estimated results and 
robustness checks of the estimates. Unlike the descriptive statistics, 
this approach allows us to determine the relationship between the 
redefault rate and modification actions, holding other factors 
constant (including borrower and loan characteristics). Similarly, 
this approach also allows us to determine the relationship between the 
redefault rate and certain borrower or loan characteristics holding 
all the other borrower and loan characteristic in the model constant. 

Model: 

Following the literature, we grouped into four categories the factors 
that generally affect whether a loan modified permanently through 
government and proprietary modification programs would redefault: 
borrower and loan characteristics at origination, borrower and loan 
characteristics at modification, geographic market and time effects, 
and investor/lender and servicer effects.[Footnote 138] We also note 
that, the redefault rate can be affected by the type of loan 
modification action. Typically, the modification lowers the monthly 
principal and interest payments by changing the interest rate, term, 
or loan balance. We use reduced-form multivariate probabilistic 
regression models,[Footnote 139] an approach used to examine choices 
and evaluate various events or outcomes, to help determine these 
effects.[Footnote 140] 

Accordingly, based on economic reasoning, data availability, and 
previous studies on loan performance, we use a relatively flexible 
specification to estimate the likelihood that a loan that has been 
modified redefaults.[Footnote 141] The dependent variable for the 
redefaults is binary and equals 100 if a loan that has been 
permanently modified redefaults within 6 months and 0 if the loan is 
still active and current. The explanatory variables that we include in 
the model to explain loan redefaults are borrower and loan 
characteristics and modification actions, conditioned by the available 
data. The complete list of variables available for the analysis is in 
table 19. 

Econometric estimates: 

We discuss results for redefault in the universe of loans using the 
CoreLogic database. The regression estimates are in table 22. We 
estimated the models using the ordinary least squares (OLS) regression 
technique.[Footnote 142] Overall, the models are significant, and most 
of the variables are statistically significant at the 5-percent level 
or better. The effects (the direction of their impacts) are generally 
consistent with our expectations. We discuss below the key findings, 
based on statistically significant changes in the likelihood of 
redefaults, using the estimated marginal effects of the explanatory 
variables.[Footnote 143] 

The regression results from estimating redefault in the universe of 
loans using the data in table 20 are presented in table 22 (based on 
the CoreLogic database) for the combined prime and subprime loans. 
[Footnote 144] The table presents regressions of redefault indicators 
(a modified loan becoming 90 days or more delinquent within 6 months 
of the modification) on modification actions--monthly payment changes, 
interest rate changes, balance reduction, capitalization, and term 
changes. In addition we include information on the borrower and the 
loan. The estimates were generated using the OLS technique. Fixed-
effects estimates for loan origination year and zip codes are not 
reported, for brevity. The reported estimates are marginal effects 
(percentage point differences). The standard errors are presented in 
parentheses, and *, **, and *** denote two-tailed significance at 10 
percent, 5 percent, and 1 percent or better, respectively. 

Table 22: Probability Regression Estimates of Redefaults of Modified 
Loans within 6 Months, Using CoreLogic Data: 

Dependent variable: Redefault (90 DPD or more) within 6 months of loan 
modification, 0/1 x 100. 

PAYMENT CHANGE; 
Modification actions: PMT[A]: (1): -0.174***; (0.011); 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): [Empty]. 

RATE CHANGE; 
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): -0.008***; (0.002); 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): [Empty]. 

BALANCE REDUCTION; 
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): 0.156**; (0.066); 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): [Empty]. 

CAPITALIZATION; 
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): 0.947***; (0.038); 
Modification actions: TERM[E]: (5): [Empty]. 

TERM EXTENSION; 
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): -0.012**; (0.005). 

DPD: 30, AT MOD; 
Modification actions: PMT[A]: (1): 8.590***; (0.881); 
Modification actions: RATE[B]: (2): 7.379***; (0.873); 
Modification actions: BAL[C]: (3): -22.619***; (6.345); 
Modification actions: CAP[D]: (4): 5.447***; (1.602); 
Modification actions: TERM[E]: (5): 4.661**; (2.018). 

DPD: 60, AT MOD; 
Modification actions: PMT[A]: (1): 8.901***; (0.787); 
Modification actions: RATE[B]: (2): 7.917***; (0.774); 
Modification actions: BAL[C]: (3): [Empty]; [Empty]; 
Modification actions: CAP[D]: (4): 9.053***; (1.451); 
Modification actions: TERM[E]: (5): 2.660; (1.780). 

DPD: 90, AT MOD; 
Modification actions: PMT[A]: (1): 18.191***; (0.577); 
Modification actions: RATE[B]: (2): 16.892***; (0.568); 
Modification actions: BAL[C]: (3): 3.916; (3.808); 
Modification actions: CAP[D]: (4): 17.116***; (1.329); 
Modification actions: TERM[E]: (5): 14.885***; (1.379). 

DPD: FCL, AT MOD; 
Modification actions: PMT[A]: (1): 20.126***; (0.715); 
Modification actions: RATE[B]: (2): 18.930***; (0.728); 
Modification actions: BAL[C]: (3): 9.640**; (4.806); 
Modification actions: CAP[D]: (4): 15.471***; (1.426); 
Modification actions: TERM[E]: (5): 17.463***; (1.564). 

CLTV: 80 to <95, AT MOD; 
Modification actions: PMT[A]: (1): 1.057*; (0.545); 
Modification actions: RATE[B]: (2): 1.527***; (0.559); 
Modification actions: BAL[C]: (3): 1.529; (2.402); 
Modification actions: CAP[D]: (4): 1.757***; (0.634); 
Modification actions: TERM[E]: (5): -0.017; (1.011). 

CLTV: 95 to <100, AT MOD; 
Modification actions: PMT[A]: (1): 1.942***; (0.721); 
Modification actions: RATE[B]: (2): 3.022***; (0.732); 
Modification actions: BAL[C]: (3): 5.724; (3.573); 
Modification actions: CAP[D]: (4): 3.231***; (0.833); 
Modification actions: TERM[E]: (5): 1.905; (1.321). 

CLTV: 100 to <115, AT MOD; 
Modification actions: PMT[A]: (1): 2.349***; (0.621); 
Modification actions: RATE[B]: (2): 3.278***; (0.623); 
Modification actions: BAL[C]: (3): 2.694; (3.025); 
Modification actions: CAP[D]: (4): 3.076***; (0.738); 
Modification actions: TERM[E]: (5): 2.771**; (1.088). 

CLTV: 115 to <125, AT MOD; 
Modification actions: PMT[A]: (1): 4.429***; (0.741); 
Modification actions: RATE[B]: (2): 5.439***; (0.737); 
Modification actions: BAL[C]: (3): 3.592; (3.736); 
Modification actions: CAP[D]: (4): 5.123***; (0.877); 
Modification actions: TERM[E]: (5): 4.548***; (1.290). 

CLTV: 125 to <150), AT MOD; 
Modification actions: PMT[A]: (1): 5.579***; (0.776); 
Modification actions: RATE[B]: (2): 6.954***; (0.767); 
Modification actions: BAL[C]: (3): 7.228*; (3.989); 
Modification actions: CAP[D]: (4): 5.788***; (0.942); 
Modification actions: TERM[E]: (5): 6.130***; (1.324). 

CLTV: 150, AT MOD; 
Modification actions: PMT[A]: (1): 9.519***; (0.957); 
Modification actions: RATE[B]: (2): 11.200***; (0.943); 
Modification actions: BAL[C]: (3): 5.167; (5.126); 
Modification actions: CAP[D]: (4): 9.758***; (1.170); 
Modification actions: TERM[E]: (5): 9.563***; (1.624). 

HOUSE PRICES (% CHG); 
Modification actions: PMT[A]: (1): -0.096**; (0.047); 
Modification actions: RATE[B]: (2): -0.057; (0.048); 
Modification actions: BAL[C]: (3): -0.533*; (0.281); 
Modification actions: CAP[D]: (4): -0.094*; (0.052); 
Modification actions: TERM[E]: (5): -0.237***; (0.087). 

CHG IN UNEMP RATE (%); 
Modification actions: PMT[A]: (1): 0.371**; (0.166); 
Modification actions: RATE[B]: (2): 0.285*; (0.170); 
Modification actions: BAL[C]: (3): 0.728; (0.778); 
Modification actions: CAP[D]: (4): 0.479**; (0.189); 
Modification actions: TERM[E]: (5): 0.345; (0.327). 

RATE, AT MOD (bps); 
Modification actions: PMT[A]: (1): 0.021***; (0.001); 
Modification actions: RATE[B]: (2): 0.027***; (0.002); 
Modification actions: BAL[C]: (3): 0.069***; (0.010); 
Modification actions: CAP[D]: (4): 0.036***; (0.001); 
Modification actions: TERM[E]: (5): 0.044***; (0.002). 

MOD STARTED, 2009Q2; 
Modification actions: PMT[A]: (1): 1.298*; (0.676); 
Modification actions: RATE[B]: (2): 1.729**; (0.729); 
Modification actions: BAL[C]: (3): 22.259***; (8.283); 
Modification actions: CAP[D]: (4): 0.623; (0.791); 
Modification actions: TERM[E]: (5): 3.176**; (1.303). 

MOD STARTED, 2009Q3; 
Modification actions: PMT[A]: (1): 0.809; (0.707); 
Modification actions: RATE[B]: (2): 1.760**; (0.757); 
Modification actions: BAL[C]: (3): 51.752***; (9.406); 
Modification actions: CAP[D]: (4): -2.363***; (0.818); 
Modification actions: TERM[E]: (5): -3.145**; (1.351). 

MOD STARTED, 2009Q4; 
Modification actions: PMT[A]: (1): -11.960***; (0.721); 
Modification actions: RATE[B]: (2): -10.345***; (0.769); 
Modification actions: BAL[C]: (3): 21.620**; (10.569); 
Modification actions: CAP[D]: (4): -14.538***; (0.802); 
Modification actions: TERM[E]: (5): -13.764***; (1.460). 

MOD STARTED, 2010Q1; 
Modification actions: PMT[A]: (1): -10.207***; (0.675); 
Modification actions: RATE[B]: (2): -8.408***; (0.717); 
Modification actions: BAL[C]: (3): 26.205***; (7.209); 
Modification actions: CAP[D]: (4): -12.552***; (0.760); 
Modification actions: TERM[E]: (5): -11.443***; (1.339). 

MOD STARTED, 2010Q2; 
Modification actions: PMT[A]: (1): -13.085***; (0.665); 
Modification actions: RATE[B]: (2): -11.469***; (0.705); 
Modification actions: BAL[C]: (3): 12.848*; (7.111); 
Modification actions: CAP[D]: (4): -15.056***; (0.753); 
Modification actions: TERM[E]: (5): -14.907***; (1.294). 

MOD STARTED, 2010Q3; 
Modification actions: PMT[A]: (1): -12.232***; (0.743); 
Modification actions: RATE[B]: (2): -10.394***; (0.780); 
Modification actions: BAL[C]: (3): 14.253*; (7.362); 
Modification actions: CAP[D]: (4): -14.860***; (0.839); 
Modification actions: TERM[E]: (5): -13.966***; (1.421). 

MOD STARTED, 2010Q4; 
Modification actions: PMT[A]: (1): -15.263***; (0.708); 
Modification actions: RATE[B]: (2): -13.196***; (0.745); 
Modification actions: BAL[C]: (3): 13.166*; (7.338); 
Modification actions: CAP[D]: (4): -18.066***; (0.805); 
Modification actions: TERM[E]: (5): -17.463***; (1.351). 

FICO: 550 to <580, AT ORIGN; 
Modification actions: PMT[A]: (1): -3.616***; (0.786); 
Modification actions: RATE[B]: (2): -3.684***; (0.809); 
Modification actions: BAL[C]: (3): 5.726; (11.724); 
Modification actions: CAP[D]: (4): -2.930***; (0.844); 
Modification actions: TERM[E]: (5): -5.775***; (1.412). 

FICO: 580 to <620, AT ORIGN; 
Modification actions: PMT[A]: (1): -3.689***; (0.664); 
Modification actions: RATE[B]: (2): -3.407***; (0.688); 
Modification actions: BAL[C]: (3): -1.876; (9.894); 
Modification actions: CAP[D]: (4): -2.767***; (0.710); 
Modification actions: TERM[E]: (5): -4.802***; (1.194). 

FICO: 620 to <660, AT ORIGN; 
Modification actions: PMT[A]: (1): -4.935***; (0.650); 
Modification actions: RATE[B]: (2): -4.770***; (0.676); 
Modification actions: BAL[C]: (3): -1.375; (9.599); 
Modification actions: CAP[D]: (4): -3.800***; (0.697); 
Modification actions: TERM[E]: (5): -6.503***; (1.178). 

FICO: 660 to <680, AT ORIGN; 
Modification actions: PMT[A]: (1): -5.883***; (0.738); 
Modification actions: RATE[B]: (2): -5.984***; (0.764); 
Modification actions: BAL[C]: (3): -3.588; (9.667); 
Modification actions: CAP[D]: (4): -4.426***; (0.799); 
Modification actions: TERM[E]: (5): -7.171***; (1.356). 

FICO: 680 to <700, AT ORIGN; 
Modification actions: PMT[A]: (1): -5.953***; (0.757); 
Modification actions: RATE[B]: (2): -6.122***; (0.781); 
Modification actions: BAL[C]: (3): -1.812; (9.691); 
Modification actions: CAP[D]: (4): -4.260***; (0.825); 
Modification actions: TERM[E]: (5): -6.256***; (1.406). 

FICO: 700 to <750, AT ORIGN; 
Modification actions: PMT[A]: (1): -6.394***; (0.715); 
Modification actions: RATE[B]: (2): -6.698***; (0.740); 
Modification actions: BAL[C]: (3): -4.732; (9.590); 
Modification actions: CAP[D]: (4): -4.527***; (0.780); 
Modification actions: TERM[E]: (5): -8.550***; (1.323). 

FICO: 750, AT ORIGN; 
Modification actions: PMT[A]: (1): -7.322***; (0.807); 
Modification actions: RATE[B]: (2): -7.692***; (0.826); 
Modification actions: BAL[C]: (3): -5.822; (9.653); 
Modification actions: CAP[D]: (4): -4.993***; (0.906); 
Modification actions: TERM[E]: (5): -9.647***; (1.502). 

LTV: 70 to <80, AT ORIGN; 
Modification actions: PMT[A]: (1): -1.135**; (0.525); 
Modification actions: RATE[B]: (2): -1.165**; (0.533); 
Modification actions: BAL[C]: (3): 1.698; (2.268); 
Modification actions: CAP[D]: (4): -1.182**; (0.598); 
Modification actions: TERM[E]: (5): -0.483; (1.013). 

LTV: 80, AT ORIGN; 
Modification actions: PMT[A]: (1): -0.841; (0.566); 
Modification actions: RATE[B]: (2): -0.730; (0.573); 
Modification actions: BAL[C]: (3): 0.602; (2.534); 
Modification actions: CAP[D]: (4): -0.526; (0.649); 
Modification actions: TERM[E]: (5): -0.394; (1.091). 

LTV: 81 to <90, AT ORIGN; 
Modification actions: PMT[A]: (1): -1.386**; (0.682); 
Modification actions: RATE[B]: (2): -1.900***; (0.690); 
Modification actions: BAL[C]: (3): 1.607; (3.358); 
Modification actions: CAP[D]: (4): -1.116; (0.778); 
Modification actions: TERM[E]: (5): 0.683; (1.289). 

LTV: 90 to <100, AT ORIGN; 
Modification actions: PMT[A]: (1): -1.273*; (0.673); 
Modification actions: RATE[B]: (2): -1.662**; (0.681); 
Modification actions: BAL[C]: (3): 1.252; (3.369); 
Modification actions: CAP[D]: (4): -0.978; (0.776); 
Modification actions: TERM[E]: (5): -0.689; (1.263). 

LTV: 100, AT ORIGN; 
Modification actions: PMT[A]: (1): -0.837; (0.819); 
Modification actions: RATE[B]: (2): -1.250; (0.827); 
Modification actions: BAL[C]: (3): 2.057; (4.224); 
Modification actions: CAP[D]: (4): -0.376; (0.942); 
Modification actions: TERM[E]: (5): -2.398; (1.489). 

RATE, AT ORIGN (bps); 
Modification actions: PMT[A]: (1): -0.006***; (0.001); 
Modification actions: RATE[B]: (2): -0.006***; (0.001); 
Modification actions: BAL[C]: (3): -0.021***; (0.006); 
Modification actions: CAP[D]: (4): -0.010***; (0.001); 
Modification actions: TERM[E]: (5): -0.006***; (0.002). 

UPB, AT ORIGN (LOG); 
Modification actions: PMT[A]: (1): 0.115; (0.444); 
Modification actions: RATE[B]: (2): -0.387; (0.458); 
Modification actions: BAL[C]: (3): -2.941; (2.674); 
Modification actions: CAP[D]: (4): 0.763; (0.506); 
Modification actions: TERM[E]: (5): 0.246; (0.883). 

PRIME (vs. SUBPRIME); 
Modification actions: PMT[A]: (1): 1.958***; (0.531); 
Modification actions: RATE[B]: (2): 1.954***; (0.561); 
Modification actions: BAL[C]: (3): 5.384; (7.333); 
Modification actions: CAP[D]: (4): 5.103***; (0.589); 
Modification actions: TERM[E]: (5): 5.618***; (1.049). 

ARM (vs. FIXED RATE); 
Modification actions: PMT[A]: (1): 2.499***; (0.455); 
Modification actions: RATE[B]: (2): 2.357***; (0.462); 
Modification actions: BAL[C]: (3): 2.277; (1.632); 
Modification actions: CAP[D]: (4): 2.213***; (0.529); 
Modification actions: TERM[E]: (5): 2.475***; (0.897). 

CONDO; 
Modification actions: PMT[A]: (1): 1.060**; (0.427); 
Modification actions: RATE[B]: (2): 0.786*; (0.432); 
Modification actions: BAL[C]: (3): 2.062; (1.968); 
Modification actions: CAP[D]: (4): 1.682***; (0.477); 
Modification actions: TERM[E]: (5): 2.669***; (0.800). 

OTHER HOUSING; 
Modification actions: PMT[A]: (1): -0.804; (0.824); 
Modification actions: RATE[B]: (2): -0.581; (0.824); 
Modification actions: BAL[C]: (3): -2.911; (4.164); 
Modification actions: CAP[D]: (4): -1.714*; (0.910); 
Modification actions: TERM[E]: (5): -1.779785; (1.497). 

FHA; 
Modification actions: PMT[A]: (1): -3.388***; (0.565); 
Modification actions: RATE[B]: (2): -3.174***; (0.606); 
Modification actions: BAL[C]: (3): -5.546; (8.440); 
Modification actions: CAP[D]: (4): -3.110***; (0.602); 
Modification actions: TERM[E]: (5): -7.529***; (1.073). 

VA; 
Modification actions: PMT[A]: (1): -11.630***; (1.379); 
Modification actions: RATE[B]: (2): -11.198***; (1.384); 
Modification actions: BAL[C]: (3): -3.606; (24.417); 
Modification actions: CAP[D]: (4): -10.569***; (1.451); 
Modification actions: TERM[E]: (5): -13.001***; (2.752). 

OWNER-OCCUPIED; 
Modification actions: PMT[A]: (1): -0.147; (0.740); 
Modification actions: RATE[B]: (2): -0.051; (0.785); 
Modification actions: BAL[C]: (3): -16.703***; (5.675); 
Modification actions: CAP[D]: (4): 1.603*; (0.840); 
Modification actions: TERM[E]: (5): 1.105; (1.646). 

REFI: CASH OUT; 
Modification actions: PMT[A]: (1): -2.316***; (0.398); 
Modification actions: RATE[B]: (2): -2.411***; (0.403); 
Modification actions: BAL[C]: (3): -1.160; (1.967); 
Modification actions: CAP[D]: (4): -1.557***; (0.449); 
Modification actions: TERM[E]: (5): -2.130***; (0.787). 

REFI: NO CASH OUT; 
Modification actions: PMT[A]: (1): -1.912***; (0.444); 
Modification actions: RATE[B]: (2): -1.855***; (0.450); 
Modification actions: BAL[C]: (3): -3.411*; (2.026); 
Modification actions: CAP[D]: (4): -1.240**; (0.496); 
Modification actions: TERM[E]: (5): -1.601*; (0.853). 

REFI: OTHER; 
Modification actions: PMT[A]: (1): -4.454***; (0.509); 
Modification actions: RATE[B]: (2): -4.277***; (0.520); 
Modification actions: BAL[C]: (3): 5.485; (5.199); 
Modification actions: CAP[D]: (4): -4.186***; (0.560); 
Modification actions: TERM[E]: (5): -3.720***; (0.893). 

Constant; 
Modification actions: PMT[A]: (1): 11.087**; (5.446); 
Modification actions: RATE[B]: (2): 12.155**; (5.728); 
Modification actions: BAL[C]: (3): 24.530; (35.400); 
Modification actions: CAP[D]: (4): -14.889**; (6.315); 
Modification actions: TERM[E]: (5): 0.607; (10.913). 

Origination year fixed-effects; 
Modification actions: PMT[A]: (1): Yes; 
Modification actions: RATE[B]: (2): Yes; 
Modification actions: BAL[C]: (3): Yes; 
Modification actions: CAP[D]: (4): Yes; 
Modification actions: TERM[E]: (5): Yes. 

Zip code fixed-effects; 
Modification actions: PMT[A]: (1): Yes; 
Modification actions: RATE[B]: (2): Yes; 
Modification actions: BAL[C]: (3): Yes; 
Modification actions: CAP[D]: (4): Yes; 
Modification actions: TERM[E]: (5): Yes. 

Baseline redefault rate; 
Modification actions: PMT[A]: (1): 18%; 
Modification actions: RATE[B]: (2): 16%; 
Modification actions: BAL[C]: (3): 11%; 
Modification actions: CAP[D]: (4): 19%; 
Modification actions: TERM[E]: (5): 19%. 

Mean value of mod action; 
Modification actions: PMT[A]: (1): 24%; 
Modification actions: RATE[B]: (2): 302 (bps); 
Modification actions: BAL[C]: (3): 20%; 
Modification actions: CAP[D]: (4): 6%; 
Modification actions: TERM[E]: (5): 99 months. 

Prob>F; 
Modification actions: PMT[A]: (1): 0.000; 
Modification actions: RATE[B]: (2): 0.000; 
Modification actions: BAL[C]: (3): 0.000; 
Modification actions: CAP[D]: (4): 0.000; 
Modification actions: TERM[E]: (5): 0.000. 

Observations; 
Modification actions: PMT[A]: (1): 81,556; 
Modification actions: RATE[B]: (2): 73,215; 
Modification actions: BAL[C]: (3): 4,262; 
Modification actions: CAP[D]: (4): 69,847; 
Modification actions: TERM[E]: (5): 28,656. 

R-squared; 
Modification actions: PMT[A]: (1): 0.253; 
Modification actions: RATE[B]: (2): 0.249; 
Modification actions: BAL[C]: (3): 0.662; 
Modification actions: CAP[D]: (4): 0.272; 
Modification actions: TERM[E]: (5): 0.406. 

Adj. R-squared; 
Modification actions: PMT[A]: (1): 0.105; 
Modification actions: RATE[B]: (2): 0.0872; 
Modification actions: BAL[C]: (3): 0.187; 
Modification actions: CAP[D]: (4): 0.106; 
Modification actions: TERM[E]: (5): 0.136. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Note: *, **, and *** denote two-tailed significance at 10 percent, 5 
percent, and 1 percent or better, respectively. 

[A] PMT=Payment change (%): 

[B] RATE=Rate change (bps): 

[C] BAL=Balance reduction (%): 

[D] CAP=Capitalization (%): 

[E] TERM=Term change (months). 

[End of table] 

We discuss the results from the redefault model using the CoreLogic 
data set, which represents the universe of loans, using the estimates 
in table 22. [Footnote 145] We start with the effects of modification 
actions on the redefault rate.[Footnote 146] 

We first discuss the payment change, which is an outcome of the 
modification actions (rate change, balance reduction, capitalization, 
and term extension). For policy purposes, the payment change is 
important for loan modifications because it indicates whether the 
modification is affordable to the consumer. But while the payment 
change is important to the consumer, the type of modification action 
is also important to the lender/investor, because certain actions may 
not be feasible given the terms of the mortgage or could result in 
lower returns. For this reason, we also discuss the effects of the 
modification actions, independent of the resulting payment change. In 
general, modification actions that make the loan affordable are 
expected to lower the redefault rate. 

Payment change: Using the coefficient estimate of -0.174 for the 
impact of payment change in table 22, we note that the larger the 
reduction in monthly principal and interest payments, the less likely 
the loans are to redefault. In particular, a 24-percent (the average) 
reduction in monthly payments would reduce the likelihood of redefault 
by 4 percentage points from the baseline redefault rate of 18 percent 
to 14 percent. 

Rate change: Using the coefficient estimate of -0.008 for the impact 
of rate change in table 22, we find that the larger the reduction in 
the interest rates of loans that receive interest rate reductions and 
at least one other modification action, the lower the redefault rate. 
A decrease of 302 bps (the average) would decrease the redefault rate 
by 2 percentage points from the baseline redefault rate of 16 percent 
to 14 percent. 

Balance reduction: Although the coefficient estimate for the impact of 
balance reduction in table 22 indicates, unexpectedly, that 
modifications that include balance reductions increase redefaults, the 
result is generally not robust. For instance, the estimates are 
insignificant when loans with balance reductions of 40 percent or more 
are excluded. Furthermore, the sample size used for the analysis is 
relatively small for the result to be meaningful.[Footnote 147] While 
our results are inconclusive regarding the impact on the redefault 
rate of a modification action that includes a balance reduction, the 
baseline redefault rate of these loans is generally low, at 11 
percent, compared to the overall redefault rate of 18 percent, which 
is the baseline redefault for the pool of loans used to estimate the 
payment reduction equation. 

Capitalization: Using the coefficient estimate of 0.947 for the impact 
of capitalization in table 22, we see that the larger the proportion 
of the amount capitalized, combined with other modification actions, 
the higher the redefault rate. A capitalization of 6 percent of the 
loan balance (the average) would increase the redefault rate by 6 
percentage points from the baseline redefault rate of 19 percent to 25 
percent. 

Term extension: Using the coefficient estimate of -0.012 for the 
impact of term extension in table 22, we note that the redefault rate 
falls as the term extension increases. A term extension of 99 months 
(the average) would reduce the redefault rate by 1 percentage point 
from the baseline redefault rate of 19 percent to 18 percent.[Footnote 
148] 

We discuss key results for borrower, loan, and other characteristics 
based on results for the payment regression equation in column 1 of 
table 22. The payment reduction is an amalgamation of several 
modification actions, and the results are generally similar to the 
estimates in the regression equations for the other modification 
actions (columns 2 through 5). We present the effects--most of which 
are expected--on the redefault rate of borrower and loan 
characteristics at modification. 

Delinquency status at modification: As expected, the results indicate 
that the more delinquent the loan at modification, the higher the 
redefault rate. 

House price depreciation: The redefault rates of loans are higher for 
higher CLTVs, as expected.[Footnote 149] Continued depreciation in 
house prices after the loan modification also increases the redefault 
rate. 

Unemployment rate: The redefault rates of loans are higher in areas 
where the unemployment rate has increased since the modification, as 
expected. 

Interest rate at modification: Loans with higher interest rates at the 
time of modification are more likely to redefault, as expected. 

Time of modification: Loan modifications that started prior to the 
fourth quarter of 2009 are more likely to redefault than those 
modified in later periods, probably because over time servicers 
learned which actions were more effective.[Footnote 150] 

We also present results of the effects of borrower and loan 
characteristics at origination on redefault rate: 

Credit score at origination: The higher the FICO credit scores at 
origination, the less likely loans are to redefault, as expected. 

LTV at origination: The redefault rates of loans with higher LTVs at 
origination are less likely to redefault, an unexpected result. 
However, the effects are generally not statistically significant. 
These results are therefore inconclusive. 

Interest rate at origination: Loans with higher interest rates at 
origination are less likely to redefault, an unexpected result. The 
reason for this result is not clear. 

We present results of other loan characteristics on the redefault rate: 

Investor/lender: As we have already mentioned, a substantial amount of 
data on the loan investor or ownership are missing or unavailable, 
especially for subprime loans. When we include the investor variable 
in the model using the limited available data for prime loans, we find 
that the redefault rates of portfolio loans and private-label 
securitized loans are lower than Fannie Mae and Freddie Mac loans. 
Excluding the Fannie Mae and Freddie Mac loans, portfolio loans were 
less likely to redefault compared to private-label securitized 
loans.[Footnote 151] The difference in the redefault rates could be 
that servicers have better information about borrowers in their pools 
of portfolio loans than they have about those in the pool of private-
label securitized loans. This finding is also consistent with the 
notion that servicers modify loans differently based on investor or 
ownership type. 

Adjustable Rate Mortgages (ARM): Loans with ARMs were more likely to 
redefault than those with fixed rates, as expected.[Footnote 152] 

Property type: Loans for condominiums were more likely to redefault 
than loans for single-family houses. 

Loan type: FHA and VA loans were less likely than conventional loans 
to redefault. The reason for this finding is not clear. 

Loan purpose: Loans for refinancing, with or without cash-outs, were 
less likely to redefault than purchase loans. The reason for this 
effect is not clear. 

Comparison of effects of loan modifications under different programs: 

We now compare the effects of the loan modifications in the CoreLogic 
data, which represent loans that had been modified under a variety of 
proprietary and federal programs, to the effects of loan modifications 
made under HAMP. To make the two data sets comparable, we restricted 
the CoreLogic data set to owner-occupied housing, since HAMP modified 
only this type of housing during the applicable period (fourth quarter 
of 2009 to second quarter of 2010). The modification also had to 
reduce the monthly payment. We also assumed that modification actions 
resulted in the same changes to the loan terms. The analysis includes 
loans that redefaulted 12 months after they were modified. We used 12 
months after modification instead of 6 months because of HAMP data 
limitations, which we mentioned earlier. A summary of the results is 
presented in table 23. The full estimates for CoreLogic and HAMP data 
are in table 24 and 25, respectively. The values represent the 
incremental effects, which are the product of the estimated 
coefficients from regression estimates of loan redefaults within 12 
months of modifications and the average changes in the modification 
actions based on the CoreLogic data representing the universe of 
loans.[Footnote 153] 

We find that the reduction in redefault rates is similar for loans in 
both data sets that are modified to lower monthly payments. For loans 
from the CoreLogic data set, a 30 percent payment reduction decreases 
the redefault rate by about 9 percentage points. For HAMP-modified 
loans, the same reduction results in a 10-percentage-point decrease. 
The results are generally similar for rate reduction and 
capitalization, actions commonly used for loans in both data sets. 
[Footnote 154] 

Although we could not separately identify actions that resulted in 
principal forgiveness and principal forbearance in the CoreLogic data, 
our analysis of HAMP found that the 12-month redefault rate for loans 
that received principal forgiveness was 8 percent, and that for loans 
receiving forbearance 12 percent. Both rates are lower than the 
overall redefault rate for all HAMP loans, which was 15 percent. When 
controlling for observable borrower and loan characteristics, however, 
we found that the effect of principal forgiveness on the redefault 
rate was inconclusive, while larger forbearance lowers the redefault 
rate.[Footnote 155] 

Table 23: Comparison of Estimated Changes in Redefaults of Modified 
Loans within 12 Months: CoreLogic versus HAMP Data Sets: 

Modification type: 

Variable: PAYMENT DECREASE OF 30 PERCENT OF LOAN BALANCE; 
Change in redefault rates (percentage points): CoreLogic data: -9; 
Change in redefault rates (percentage points): HAMP data: -10. 

Variable: RATE DECREASE OF 326 bps; 
Change in redefault rates (percentage points): CoreLogic data: -6; 
Change in redefault rates (percentage points): HAMP data: -5. 

Variable: BALANCE REDUCTION OF 23 PERCENT; 
Change in redefault rates (percentage points): CoreLogic data: 1[A]; 
Change in redefault rates (percentage points): HAMP data: -1[B]. 

Variable: CAPITALIZATION OF 6 PERCENT; 
Change in redefault rates (percentage points): CoreLogic data: 8; 
Change in redefault rates (percentage points): HAMP data: 8. 

Variable: TERM EXTENSION OF 95 MONTHS; 
Change in redefault rates (percentage points): CoreLogic data: -1[A]; 
Change in redefault rates (percentage points): HAMP data: -4. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Treasury. 

[A] The calculated incremental effect is not statistically significant. 

[B] The balance reduction is the combined estimate for principal 
forgiveness and principal forbearance under HAMP. The effect of 
principal forgiveness is 1.288 (which is not statistically 
significant) and the effect of principal forbearance is -3.611. 

[End of table] 

Table 24 presents regressions of a redefault indicator (a modified 
loan becoming 90 days or more delinquent within 12 months of the 
modification) on modification actions--monthly payment changes, 
interest rate changes, balance reduction, capitalization, and term 
changes--for the CoreLogic data. The regression includes information 
on the borrower and the loan. We used the OLS technique, and fixed-
effects estimates for loan origination year and zip codes are not 
reported, for brevity. The reported estimates are marginal effects 
(percentage point differences). The standard errors are presented in 
parentheses, and *, **, and *** denote two-tailed significance at 10 
percent, 5 percent, and 1 percent or better, respectively. 

Table 24: Probability Regression Estimates of Redefaults of Modified 
Loans within 12 Months: CoreLogic Data: 

Dependent variable: redefault (90 DPD or more) within 12 months of 
modification,0/1 x 100: Dependent variable: redefault (90 DPD or more) 
within 12 months of modification,0/1 x 100PAYMENT CHANGE: [Empty]. 

Variables: PAYMENT CHANGE;
Modification actions: PMT[A]: (1): -0.305***; (0.024); 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): [Empty]. 

Variables: RATE CHANGE;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): -0.017***; (0.004); 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): [Empty]. 

Variables: BALANCE REDUCTION;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): 0.052; (0.139); 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): [Empty]. 

Variables: CAPITALIZATION;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): 1.405***; (0.081); 
Modification actions: TERM[E]: (5): [Empty]. 

Variables: TERM EXTENSION;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): [Empty]; 
Modification actions: TERM[E]: (5): -0.014; (0.012). 

Variables: DPD: 30, AT MOD;
Modification actions: PMT[A]: (1): 3.635; (2.555); 
Modification actions: RATE[B]: (2): 2.840; (2.548); 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): 2.287; (4.613); 
Modification actions: TERM[E]: (5): 0.756;(6.919). 

Variables: DPD: 60, AT MOD;
Modification actions: PMT[A]: (1): 2.617; (2.112); 
Modification actions: RATE[B]: (2): 2.391; (2.088); 
Modification actions: BAL[C]: (3): 40.721; (27.776); 
Modification actions: CAP[D]: (4): 4.214; (4.164); 
Modification actions: TERM[E]: (5): 0.143; (5.870). 

Variables: DPD: 90, AT MOD;
Modification actions: PMT[A]: (1): 16.609***; (1.766); 
Modification actions: RATE[B]: (2): 16.053***; (1.748); 
Modification actions: BAL[C]: (3): 39.111; (26.534); 
Modification actions: CAP[D]: (4): 14.644***; (3.969); 
Modification actions: TERM[E]: (5): 14.391***; (5.295). 

Variables: DPD: FCL, AT MOD;
Modification actions: PMT[A]: (1): 21.614***; (1.958); 
Modification actions: RATE[B]: (2): 21.803***; (1.956); 
Modification actions: BAL[C]: (3): 34.996; (27.583); 
Modification actions: CAP[D]: (4): 13.106***; (4.121); 
Modification actions: TERM[E]: (5): 22.013***; (5.533). 

Variables: CLTV: 80 to <95, AT MOD;
Modification actions: PMT[A]: (1): 0.677; (1.127); 
Modification actions: RATE[B]: (2): 1.695; (1.102); 
Modification actions: BAL[C]: (3): -1.279; (5.302); 
Modification actions: CAP[D]: (4): 1.996; (1.307); 
Modification actions: TERM[E]: (5): 0.281; (2.073). 

Variables: CLTV: 95 to <100, AT MOD;
Modification actions: PMT[A]: (1): 3.673**; (1.483); 
Modification actions: RATE[B]: (2): 5.368***; (1.452); 
Modification actions: BAL[C]: (3): 10.131; (7.800); 
Modification actions: CAP[D]: (4): 5.419***; (1.686); 
Modification actions: TERM[E]: (5): 4.254; (2.759). 

Variables: CLTV: 100 to <115, AT MOD;
Modification actions: PMT[A]: (1): 3.047**; (1.269); 
Modification actions: RATE[B]: (2): 4.866***; (1.220); 
Modification actions: BAL[C]: (3): 3.353; (6.833); 
Modification actions: CAP[D]: (4): 4.167***; (1.503); 
Modification actions: TERM[E]: (5): 4.157*; (2.183). 

Variables: CLTV: 115 to <125, AT MOD;
Modification actions: PMT[A]: (1): 6.433***; (1.499); 
Modification actions: RATE[B]: (2): 8.975***; (1.438); 
Modification actions: BAL[C]: (3): 6.516; (8.440); 
Modification actions: CAP[D]: (4): 7.672***; (1.773); 
Modification actions: TERM[E]: (5): 6.927***; (2.612). 

Variables: CLTV: 125 to <150, AT MOD;
Modification actions: PMT[A]: (1): 8.652***; (1.556); 
Modification actions: RATE[B]: (2): 11.534***; (1.479); 
Modification actions: BAL[C]: (3): 3.485; (8.592); 
Modification actions: CAP[D]: (4): 9.494***; (1.892); 
Modification actions: TERM[E]: (5): 6.574**; (2.604). 

Variables: CLTV: 150, AT MOD;
Modification actions: PMT[A]: (1): 15.546***; (1.918); 
Modification actions: RATE[B]: (2): 19.321***; (1.817); 
Modification actions: BAL[C]: (3): 1.314; (11.033); 
Modification actions: CAP[D]: (4): 16.132***; (2.349); 
Modification actions: TERM[E]: (5): 12.912***; (3.208). 

Variables: HOUSE PRICES (% CHG);
Modification actions: PMT[A]: (1): -0.148; (0.150); 
Modification actions: RATE[B]: (2): -0.157; (0.150); 
Modification actions: BAL[C]: (3): -0.691; (1.210); 
Modification actions: CAP[D]: (4): -0.150; (0.163); 
Modification actions: TERM[E]: (5): -0.039; (0.295). 

Variables: CHG IN UNEMP RATE (%);
Modification actions: PMT[A]: (1): 0.041; (0.834); 
Modification actions: RATE[B]: (2): -0.373; (0.833); 
Modification actions: BAL[C]: (3): 10.789*; (6.269); 
Modification actions: CAP[D]: (4): -0.950; (0.905); 
Modification actions: TERM[E]: (5): 0.858; (1.716). 

Variables: RATE, AT MOD (bps);
Modification actions: PMT[A]: (1): 0.022***; (0.003); 
Modification actions: RATE[B]: (2): 0.035***; (0.004); 
Modification actions: BAL[C]: (3): 0.111***; (0.028); 
Modification actions: CAP[D]: (4): 0.054***; (0.002); 
Modification actions: TERM[E]: (5): 0.051***; (0.005). 

Variables: MOD STARTED, 2010Q1;
Modification actions: PMT[A]: (1): 0.025; (1.014); 
Modification actions: RATE[B]: (2): 0.272; (1.017); 
Modification actions: BAL[C]: (3): 18.345; (17.150); 
Modification actions: CAP[D]: (4): -0.644; (1.084); 
Modification actions: TERM[E]: (5): -0.468; (2.035). 

Variables: MOD STARTED, 2010Q2;
Modification actions: PMT[A]: (1): -5.325***; (0.977); 
Modification actions: RATE[B]: (2): -5.341***; (0.981); 
Modification actions: BAL[C]: (3): 1.953; (17.707); 
Modification actions: CAP[D]: (4): -5.334***; (1.047); 
Modification actions: TERM[E]: (5): -6.567***; (1.979). 

Variables: FICO: 550 to <580, AT ORIGN;
Modification actions: PMT[A]: (1): -3.547**; (1.660); 
Modification actions: RATE[B]: (2): -3.074*; (1.670); 
Modification actions: BAL[C]: (3): 51.947**; (25.946); 
Modification actions: CAP[D]: (4): -3.223*; (1.723); 
Modification actions: TERM[E]: (5): -4.554; (2.807). 

Variables: FICO: 580 to <620, AT ORIGN;
Modification actions: PMT[A]: (1): -5.918***; (1.391); 
Modification actions: RATE[B]: (2): -5.057***; (1.405); 
Modification actions: BAL[C]: (3): -10.356; (21.752); 
Modification actions: CAP[D]: (4): -3.955***; (1.446); 
Modification actions: TERM[E]: (5): -5.473**; (2.396). 

Variables: FICO: 620 to <660, AT ORIGN;
Modification actions: PMT[A]: (1): -10.228***; (1.359); 
Modification actions: RATE[B]: (2): -9.767***; (1.374); 
Modification actions: BAL[C]: (3): -16.725; (20.584); 
Modification actions: CAP[D]: (4): -7.788***; (1.418); 
Modification actions: TERM[E]: (5): -11.653***; (2.363). 

Variables: FICO: 660 to <680, AT ORIGN;
Modification actions: PMT[A]: (1): -13.030***; (1.534); 
Modification actions: RATE[B]: (2): -12.613***; (1.544); 
Modification actions: BAL[C]: (3): -14.521; (20.749); 
Modification actions: CAP[D]: (4): -9.941***; (1.616); 
Modification actions: TERM[E]: (5): -15.514***; (2.802). 

Variables: FICO: 680 to <700, AT ORIGN;
Modification actions: PMT[A]: (1): -14.135***; (1.552); 
Modification actions: RATE[B]: (2): -13.932***; (1.560); 
Modification actions: BAL[C]: (3): -15.033; (20.716); 
Modification actions: CAP[D]: (4): -12.193***; (1.645); 
Modification actions: TERM[E]: (5): -14.358***; (2.852). 

Variables: FICO: 700 to <750, AT ORIGN;
Modification actions: PMT[A]: (1): -14.441***; (1.475); 
Modification actions: RATE[B]: (2): -14.037***; (1.485); 
Modification actions: BAL[C]: (3): -21.381; (20.613); 
Modification actions: CAP[D]: (4): -11.728***; (1.560); 
Modification actions: TERM[E]: (5): -17.219***; (2.705). 

Variables: FICO: 750, AT ORIGN;
Modification actions: PMT[A]: (1): -18.370***; (1.656); 
Modification actions: RATE[B]: (2): -18.155***; (1.663); 
Modification actions: BAL[C]: (3): -20.708; (20.577); 
Modification actions: CAP[D]: (4): -15.670***; (1.792); 
Modification actions: TERM[E]: (5): -21.966***; (3.111). 

Variables: LTV: 70 to <80, AT ORIGN;
Modification actions: PMT[A]: (1): 0.008; (1.036); 
Modification actions: RATE[B]: (2): -1.065; (1.021); 
Modification actions: BAL[C]: (3): -2.761; (5.060); 
Modification actions: CAP[D]: (4): -0.065; (1.157); 
Modification actions: TERM[E]: (5): 1.334; (2.103). 

Variables: LTV: 80, AT ORIGN;
Modification actions: PMT[A]: (1): 0.612; (1.119); 
Modification actions: RATE[B]: (2): -0.352; (1.101); 
Modification actions: BAL[C]: (3): -5.876; (5.677); 
Modification actions: CAP[D]: (4): 0.335; (1.253); 
Modification actions: TERM[E]: (5): 0.008; (2.268). 

Variables: LTV: 81,to <90, AT ORIGN;
Modification actions: PMT[A]: (1): 0.176; (1.366); 
Modification actions: RATE[B]: (2): -0.861; (1.347); 
Modification actions: BAL[C]: (3): 0.878; (7.502); 
Modification actions: CAP[D]: (4): 0.241; (1.510); 
Modification actions: TERM[E]: (5): 3.975; (2.672). 

Variables: LTV:90 to <100, AT ORIGN;
Modification actions: PMT[A]: (1): 0.483; (1.358); 
Modification actions: RATE[B]: (2): -0.943; (1.333); 
Modification actions: BAL[C]: (3): -0.157; (7.706); 
Modification actions: CAP[D]: (4): 0.191; (1.527); 
Modification actions: TERM[E]: (5): 1.085; (2.611). 

Variables: LTV: 100, AT ORIGN;
Modification actions: PMT[A]: (1): 0.852; (1.670); 
Modification actions: RATE[B]: (2): -0.701; (1.641); 
Modification actions: BAL[C]: (3): -3.756; (9.412); 
Modification actions: CAP[D]: (4): 0.265; (1.878); 
Modification actions: TERM[E]: (5): 1.355; (3.181). 

Variables: RATE, AT ORIGN (bps);
Modification actions: PMT[A]: (1): -0.006**; (0.002); 
Modification actions: RATE[B]: (2): -0.005**; (0.003); 
Modification actions: BAL[C]: (3): -0.044***; (0.014); 
Modification actions: CAP[D]: (4): -0.017***; (0.003); 
Modification actions: TERM[E]: (5): -0.009*; (0.005). 

Variables: UPB, AT ORIGN (LOG);
Modification actions: PMT[A]: (1): 2.085**; (0.954); 
Modification actions: RATE[B]: (2): 1.352; (0.950); 
Modification actions: BAL[C]: (3): -4.975; (6.150); 
Modification actions: CAP[D]: (4): 2.492**; (1.048); 
Modification actions: TERM[E]: (5): 4.329**; (1.970). 

Variables: PRIME (vs. SUBPRIME);
Modification actions: PMT[A]: (1): -0.078; (1.142); 
Modification actions: RATE[B]: (2): 1.159; (1.162); 
Modification actions: BAL[C]: (3): 50.351*; (28.682); 
Modification actions: CAP[D]: (4): 3.880***; (1.192); 
Modification actions: TERM[E]: (5): 4.813**; (2.369). 

Variables: ARM (vs. FIXED RATE);
Modification actions: PMT[A]: (1): 5.079***; (0.939); 
Modification actions: RATE[B]: (2): 5.016***; (0.936); 
Modification actions: BAL[C]: (3): 2.643; (3.683); 
Modification actions: CAP[D]: (4): 3.988***; (1.068); 
Modification actions: TERM[E]: (5): 5.282***; (1.972). 

Variables: CONDO;
Modification actions: PMT[A]: (1): 0.061; (0.866); 
Modification actions: RATE[B]: (2): 0.022; (0.859); 
Modification actions: BAL[C]: (3): 0.816; (4.620); 
Modification actions: CAP[D]: (4): 0.007; (0.942); 
Modification actions: TERM[E]: (5): 2.399; (1.724). 

Variables: OTHER HOUSING;
Modification actions: PMT[A]: (1): -1.054; (1.683); 
Modification actions: RATE[B]: (2): -1.295; (1.663); 
Modification actions: BAL[C]: (3): 7.042; (9.176); 
Modification actions: CAP[D]: (4): -2.176; (1.802); 
Modification actions: TERM[E]: (5): 0.232; (3.104). 

Variables: FHA;
Modification actions: PMT[A]: (1): 2.449**; (1.208); 
Modification actions: RATE[B]: (2): 2.164*; (1.248); 
Modification actions: BAL[C]: (3): -75.761***; (22.451); 
Modification actions: CAP[D]: (4): 2.110*; (1.266); 
Modification actions: TERM[E]: (5): 0.243; (2.403). 

Variables: VA;
Modification actions: PMT[A]: (1): -5.163*; (3.070); 
Modification actions: RATE[B]: (2): -4.897; (3.098); 
Modification actions: BAL[C]: (3): [Empty]; 
Modification actions: CAP[D]: (4): -3.104; (3.211); 
Modification actions: TERM[E]: (5): -4.821; (6.014). 

Variables: REFI: CASH OUT;
Modification actions: PMT[A]: (1): -2.527***; (0.814); 
Modification actions: RATE[B]: (2): -2.455***; (0.809); 
Modification actions: BAL[C]: (3): -2.179; (4.291); 
Modification actions: CAP[D]: (4): -2.115**; (0.884); 
Modification actions: TERM[E]: (5): -3.123*; (1.701). 

Variables: REFI: NO CASH OUT;
Modification actions: PMT[A]: (1): -1.157; (0.894); 
Modification actions: RATE[B]: (2): -1.165; (0.889); 
Modification actions: BAL[C]: (3): -7.838*; (4.518); 
Modification actions: CAP[D]: (4): -0.428; (0.979); 
Modification actions: TERM[E]: (5): -3.713**; (1.805). 

Variables: REFI: OTHER;
Modification actions: PMT[A]: (1): -5.047***; (1.017); 
Modification actions: RATE[B]: (2): -5.219***; (1.022); 
Modification actions: BAL[C]: (3): -29.375*; (16.598); 
Modification actions: CAP[D]: (4): -4.769***; (1.075); 
Modification actions: TERM[E]: (5): -3.011; (1.844). 

Variables: CONSTANT;
Modification actions: PMT[A]: (1): -2.046; (11.690); 
Modification actions: RATE[B]: (2): -3.192; (11.819); 
Modification actions: BAL[C]: (3): 4.668; (86.617); 
Modification actions: CAP[D]: (4): -34.329**; (13.383); 
Modification actions: TERM[E]: (5): -45.151*; (24.626). 

Variables: Origination year fixed-effects;
Modification actions: PMT[A]: (1): Yes; 
Modification actions: RATE[B]: (2): Yes; 
Modification actions: BAL[C]: (3): Yes; 
Modification actions: CAP[D]: (4): Yes; 
Modification actions: TERM[E]: (5): Yes. 

Variables: Zip code fixed-effects;
Modification actions: PMT[A]: (1): Yes; 
Modification actions: RATE[B]: (2): Yes; 
Modification actions: BAL[C]: (3): Yes; 
Modification actions: CAP[D]: (4): Yes; 
Modification actions: TERM[E]: (5): Yes. 

Variables: Baseline redefault rate;
Modification actions: PMT[A]: (1): 26%; 
Modification actions: RATE[B]: (2): 25%; 
Modification actions: BAL[C]: (3): 15%; 
Modification actions: CAP[D]: (4): 27%; 
Modification actions: TERM[E]: (5): 27%. 

Variables: Mean value of mod action;
Modification actions: PMT[A]: (1): 30%; 
Modification actions: RATE[B]: (2): 326 bps; 
Modification actions: BAL[C]: (3): 23%; 
Modification actions: CAP[D]: (4): 6%; 
Modification actions: TERM[E]: (5): 95 months. 

Variables: Prob>F;
Modification actions: PMT[A]: (1): 0.000; 
Modification actions: RATE[B]: (2): 0.000; 
Modification actions: BAL[C]: (3): 0.000; 
Modification actions: CAP[D]: (4): 0.000; 
Modification actions: TERM[E]: (5): 0.000. 

Variables: Observations;
Modification actions: PMT[A]: (1): 30,683; 
Modification actions: RATE[B]: (2): 30,508; 
Modification actions: BAL[C]: (3): 2,046; 
Modification actions: CAP[D]: (4): 27,717; 
Modification actions: TERM[E]: (5): 10,914. 

Variables: R-squared;
Modification actions: PMT[A]: (1): 0.391; 
Modification actions: RATE[B]: (2): 0.387; 
Modification actions: BAL[C]: (3): 0.753; 
Modification actions: CAP[D]: (4): 0.409; 
Modification actions: TERM[E]: (5): 0.585. 

Variables: Adj. R-squared;
Modification actions: PMT[A]: (1): 0.125; 
Modification actions: RATE[B]: (2): 0.120; 
Modification actions: BAL[C]: (3): 0.0861; 
Modification actions: CAP[D]: (4): 0.124; 
Modification actions: TERM[E]: (5): 0.163. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Note: *, **, and *** denote two-tailed significance at 10 percent, 5 
percent, and 1 percent or better, respectively. 

[A] PMT=Payment change (%): 

[B] RATE=Rate change (bps): 

[C] BAL=Balance reduction (%): 

[D] CAP=Capitalization (%): 

[E] TERM=Term change (months). 

[End of table] 

Table 25 presents regressions of a redefault indicator (a modified 
loan becoming 90 days or more delinquent within 12 months of the 
modification) on modification actions--monthly payment changes, 
interest rate changes, principal forgiveness, principal forbearance, 
capitalization, and term changes--for the HAMP data. The regression 
includes information on the borrower and the loan. We used the OLS 
technique. Fixed-effects estimates for loan origination year and zip 
codes are not reported, for brevity; and fixed effects for the 
servicers are not reported for reasons of confidentiality. The 
reported estimates are marginal effects (percentage point 
differences). The standard errors are presented in parentheses, and *, 
**, and *** denote two-tailed significance at 10 percent, 5 percent, 
and 1 percent or better, respectively. 

Table 25: Probability Regression Estimates of Redefaults of Modified 
Loans within 12 Months: HAMP Data: 

Dependent variable: redefault (90+ DPD) within 12 months of 
modification, 0/1 x 100: 

Variables: PAYMENT CHANGE;
Modification actions: PMT[A]: (1): -0.322***; (0.006); 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): [Empty]; 
Modification actions: CAP[E]: (5): [Empty]; 
Modification actions: TERM[F]: (6): [Empty]. 

Variables: RATE CHANGE;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): -0.015***; (0.001); 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): [Empty]; 
Modification actions: CAP[E]: (5): [Empty]; 
Modification actions: TERM[F]: (6): [Empty]. 

Variables: PRINCIPAL FORGIVENESS;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: PFGV[C]: (3): 0.056; (0.154); 
Modification actions: PFBR[D]: (4): [Empty]; 
Modification actions: CAP[E]: (5): [Empty]; 
Modification actions: TERM[F]: (6): [Empty]. 

Variables: PRINCIPAL FORBEARANCE;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): -0.157***; (0.013); 
Modification actions: CAP[E]: (5): [Empty]; 
Modification actions: TERM[F]: (6): [Empty]. 

Variables: CAPITALIZATION;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): [Empty]; 
Modification actions: CAP[E]: (5): 1.345***; (0.021); 
Modification actions: TERM[F]: (6): [Empty]. 

Variables: TERM EXTENSION;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): [Empty]; 
Modification actions: CAP[E]: (5): [Empty]; 
Modification actions: TERM[F]: (6): -0.046***; (0.001). 

Variables: PFGV*PFBR;
Modification actions: PMT[A]: (1): [Empty]; 
Modification actions: RATE[B]: (2): [Empty]; 
Modification actions: PFGV[C]: (3): -2.188; (2.608); 
Modification actions: PFBR[D]: (4): -6.893***; (2.079); 
Modification actions: CAP[E]: (5): [Empty]; 
Modification actions: TERM[F]: (6): [Empty]. 

Variables: DPD: 30, AT MOD;
Modification actions: PMT[A]: (1): 4.044***; (0.273); 
Modification actions: RATE[B]: (2): 4.449***; (0.270); 
Modification actions: PFGV[C]: (3): 3.415; (5.103); 
Modification actions: PFBR[D]: (4): 2.268**; (0.966); 
Modification actions: CAP[E]: (5): 4.133***; (0.274); 
Modification actions: TERM[F]: (6): 4.175***; (0.278). 

Variables: DPD: 60, AT MOD;
Modification actions: PMT[A]: (1): 4.419***; (0.317); 
Modification actions: RATE[B]: (2): 4.663***; (0.316); 
Modification actions: PFGV[C]: (3): 3.194; (5.307); 
Modification actions: PFBR[D]: (4): 3.562***; (0.980); 
Modification actions: CAP[E]: (5): 4.127***; (0.319); 
Modification actions: TERM[F]: (6): 4.666***; (0.325). 

Variables: DPD: 90, AT MOD;
Modification actions: PMT[A]: (1): 10.155***; (0.250); 
Modification actions: RATE[B]: (2): 10.322***; (0.249); 
Modification actions: PFGV[C]: (3): 5.927*; (3.529); 
Modification actions: PFBR[D]: (4): 7.095***; (0.796); 
Modification actions: CAP[E]: (5): 5.966***; (0.260); 
Modification actions: TERM[F]: (6): 10.327***; (0.256). 

Variables: DPD: FCL, AT MOD;
Modification actions: PMT[A]: (1): 13.396***; (0.419); 
Modification actions: RATE[B]: (2): 10.764***; (0.430); 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): 10.584***; (0.974); 
Modification actions: CAP[E]: (5): 4.314***; (0.444); 
Modification actions: TERM[F]: (6): 12.817***; (0.432). 

Variables: FICO: 550 to <580, AT MOD;
Modification actions: PMT[A]: (1): -5.669***; (0.220); 
Modification actions: RATE[B]: (2): -5.610***; (0.220); 
Modification actions: PFGV[C]: (3): -5.772*; (3.235); 
Modification actions: PFBR[D]: (4): -4.199***; (0.573); 
Modification actions: CAP[E]: (5): -5.351***; (0.221); 
Modification actions: TERM[F]: (6): -5.430***; (0.230). 

Variables: FICO: 580 to <620, AT MOD;
Modification actions: PMT[A]: (1): -7.726***; (0.220); 
Modification actions: RATE[B]: (2): -7.679***; (0.220); 
Modification actions: PFGV[C]: (3): -6.593**; (2.975); 
Modification actions: PFBR[D]: (4): -5.996***; (0.592); 
Modification actions: CAP[E]: (5): -7.109***; (0.221); 
Modification actions: TERM[F]: (6): -7.444***; (0.229). 

Variables: FICO: 620 to <660, AT MOD;
Modification actions: PMT[A]: (1): -9.254***; (0.253); 
Modification actions: RATE[B]: (2): -9.310***; (0.252); 
Modification actions: PFGV[C]: (3): -5.065; (3.336); 
Modification actions: PFBR[D]: (4): -7.462***; (0.726); 
Modification actions: CAP[E]: (5): -8.168***; (0.254); 
Modification actions: TERM[F]: (6): -8.944***; (0.260). 

Variables: FICO: 660 to <680, AT MOD;
Modification actions: PMT[A]: (1): -10.296***; (0.376); 
Modification actions: RATE[B]: (2): -10.292***; (0.374); 
Modification actions: PFGV[C]: (3): -12.297***; (4.691); 
Modification actions: PFBR[D]: (4): -7.560***; (1.176); 
Modification actions: CAP[E]: (5): -8.686***; (0.378); 
Modification actions: TERM[F]: (6): -10.008***; (0.385). 

Variables: FICO: 680 to <700, AT MOD;
Modification actions: PMT[A]: (1): -10.140***; (0.407); 
Modification actions: RATE[B]: (2): -10.252***; (0.405); 
Modification actions: PFGV[C]: (3): -4.742; (4.894); 
Modification actions: PFBR[D]: (4): -7.319***; (1.322); 
Modification actions: CAP[E]: (5): -8.171***; (0.410); 
Modification actions: TERM[F]: (6): -9.872***; (0.416). 

Variables: FICO: 700 to <750, AT MOD;
Modification actions: PMT[A]: (1): -10.590***; (0.315); 
Modification actions: RATE[B]: (2): -10.748***; (0.313); 
Modification actions: PFGV[C]: (3): -6.888*; (3.961); 
Modification actions: PFBR[D]: (4): -5.865***; (1.036); 
Modification actions: CAP[E]: (5): -8.496***; (0.319); 
Modification actions: TERM[F]: (6): -10.065***; (0.322). 

Variables: FICO: 750, AT MOD;
Modification actions: PMT[A]: (1): -9.113***; (0.328); 
Modification actions: RATE[B]: (2): -9.396***; (0.326); 
Modification actions: PFGV[C]: (3): -8.247**; (4.098); 
Modification actions: PFBR[D]: (4): -5.980***; (1.228); 
Modification actions: CAP[E]: (5): -7.102***; (0.333); 
Modification actions: TERM[F]: (6): -8.491***; (0.334). 

Variables: CLTV: 80 to <95, AT MOD;
Modification actions: PMT[A]: (1): 1.549**; (0.607); 
Modification actions: RATE[B]: (2): 1.316**; (0.606); 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): 0.817; (4.160); 
Modification actions: CAP[E]: (5): 1.926***; (0.614); 
Modification actions: TERM[F]: (6): 1.612***; (0.620). 

Variables: CLTV: 95 to <100, AT MOD;
Modification actions: PMT[A]: (1): 1.875***; (0.683); 
Modification actions: RATE[B]: (2): 1.520**; (0.681); 
Modification actions: PFGV[C]: (3): 13.601; (50.401); 
Modification actions: PFBR[D]: (4): 3.216; (4.312); 
Modification actions: CAP[E]: (5): 2.143***; (0.689); 
Modification actions: TERM[F]: (6): 1.900***; (0.698). 

Variables: CLTV: 100 to <115, AT MOD;
Modification actions: PMT[A]: (1): 3.836***; (0.606); 
Modification actions: RATE[B]: (2): 3.156***; (0.605); 
Modification actions: PFGV[C]: (3): 0.729; (34.451); 
Modification actions: PFBR[D]: (4): 4.396; (3.975); 
Modification actions: CAP[E]: (5): 4.016***; (0.613); 
Modification actions: TERM[F]: (6): 3.825***; (0.621). 

Variables: CLTV: 115 to <125, AT MOD;
Modification actions: PMT[A]: (1): 5.316***; (0.655); 
Modification actions: RATE[B]: (2): 4.619***; (0.653); 
Modification actions: PFGV[C]: (3): -0.280; (33.686); 
Modification actions: PFBR[D]: (4): 4.294; (4.055); 
Modification actions: CAP[E]: (5): 5.399***; (0.661); 
Modification actions: TERM[F]: (6): 5.162***; (0.672). 

Variables: CLTV: 125 to <150, AT MOD;
Modification actions: PMT[A]: (1): 6.583***; (0.690); 
Modification actions: RATE[B]: (2): 5.897***; (0.689); 
Modification actions: PFGV[C]: (3): -2.838; (32.826); 
Modification actions: PFBR[D]: (4): 7.429*; (4.125); 
Modification actions: CAP[E]: (5): 6.624***; (0.697); 
Modification actions: TERM[F]: (6): 6.464***; (0.708). 

Variables: CLTV: 150, AT MOD;
Modification actions: PMT[A]: (1): 8.184***; (0.753); 
Modification actions: RATE[B]: (2): 7.469***; (0.752); 
Modification actions: PFGV[C]: (3): 0.394; (33.041); 
Modification actions: PFBR[D]: (4): 10.679**; (4.229); 
Modification actions: CAP[E]: (5): 8.505***; (0.760); 
Modification actions: TERM[F]: (6): 8.092***; (0.773). 

Variables: DTIBE: 35 to <40, AT MOD;
Modification actions: PMT[A]: (1): -0.719**; (0.314); 
Modification actions: RATE[B]: (2): -0.606*; (0.313); 
Modification actions: PFGV[C]: (3): 1.254; (3.443); 
Modification actions: PFBR[D]: (4): -1.882**; (0.854); 
Modification actions: CAP[E]: (5): -0.112; (0.315); 
Modification actions: TERM[F]: (6): -0.613*; (0.321). 

Variables: DTIBE: 40 <45, AT MOD;
Modification actions: PMT[A]: (1): -0.550*; (0.312); 
Modification actions: RATE[B]: (2): -0.197; (0.311); 
Modification actions: PFGV[C]: (3): -0.703; (3.495); 
Modification actions: PFBR[D]: (4): -2.020**; (0.853); 
Modification actions: CAP[E]: (5): 0.588*; (0.312); 
Modification actions: TERM[F]: (6): -0.117; (0.318). 

Variables: DTIBE: 45 to <50, AT MOD;
Modification actions: PMT[A]: (1): -0.595*; (0.319); 
Modification actions: RATE[B]: (2): -0.280; (0.319); 
Modification actions: PFGV[C]: (3): -2.782; (3.460); 
Modification actions: PFBR[D]: (4): 0.170; (0.864); 
Modification actions: CAP[E]: (5): 0.705**; (0.320); 
Modification actions: TERM[F]: (6): -0.250; (0.326). 

Variables: DTIBE: 50 to <55, AT MOD;
Modification actions: PMT[A]: (1): -0.992***; (0.336); 
Modification actions: RATE[B]: (2): -0.931***; (0.335); 
Modification actions: PFGV[C]: (3): -7.020*; (3.933); 
Modification actions: PFBR[D]: (4): -0.738; (0.887); 
Modification actions: CAP[E]: (5): 0.345; (0.337); 
Modification actions: TERM[F]: (6): -0.657*; (0.343). 

Variables: DTIBE: 55 to <65, AT MOD;
Modification actions: PMT[A]: (1): -1.312***; (0.281); 
Modification actions: RATE[B]: (2): -1.199***; (0.281); 
Modification actions: PFGV[C]: (3): -2.013; (3.542); 
Modification actions: PFBR[D]: (4): -0.946; (0.750); 
Modification actions: CAP[E]: (5): 0.099; (0.282); 
Modification actions: TERM[F]: (6): -1.163***; (0.288). 

Variables: DTIBE: 65, AT MOD;
Modification actions: PMT[A]: (1): -1.657***; (0.239); 
Modification actions: RATE[B]: (2): -2.006***; (0.239); 
Modification actions: PFGV[C]: (3): -3.272; (3.311); 
Modification actions: PFBR[D]: (4): -2.570***; (0.627); 
Modification actions: CAP[E]: (5): -0.764***; (0.241); 
Modification actions: TERM[F]: (6): -1.863***; (0.245). 

Variables: HOUSE PRICES (% CHG);
Modification actions: PMT[A]: (1): 0.010; (0.043); 
Modification actions: RATE[B]: (2): 0.022; (0.043); 
Modification actions: PFGV[C]: (3): 4.184***; (1.618); 
Modification actions: PFBR[D]: (4): 0.186; (0.117); 
Modification actions: CAP[E]: (5): 0.025; (0.043); 
Modification actions: TERM[F]: (6): 0.030; (0.044). 

Variables: CHG IN UNEMP RATE (%);
Modification actions: PMT[A]: (1): 0.137; (0.224); 
Modification actions: RATE[B]: (2): 0.158; (0.224); 
Modification actions: PFGV[C]: (3): -12.656; (15.177); 
Modification actions: PFBR[D]: (4): -0.184; (0.672); 
Modification actions: CAP[E]: (5): 0.072; (0.224); 
Modification actions: TERM[F]: (6): 0.216; (0.230). 

Variables: RATE, AT MOD (bps);
Modification actions: PMT[A]: (1): 0.003***; (0.001); 
Modification actions: RATE[B]: (2): 0.018***; (0.001); 
Modification actions: PFGV[C]: (3): 0.020**; (0.009); 
Modification actions: PFBR[D]: (4): 0.023***; (0.002); 
Modification actions: CAP[E]: (5): 0.037***; (0.001); 
Modification actions: TERM[F]: (6): 0.024***; (0.001). 

Variables: TRIAL LENGTH 6 MONS;
Modification actions: PMT[A]: (1): 0.778***; (0.178); 
Modification actions: RATE[B]: (2): 0.775***; (0.177); 
Modification actions: PFGV[C]: (3): 7.829; (7.752); 
Modification actions: PFBR[D]: (4): 1.089**; (0.552); 
Modification actions: CAP[E]: (5): -1.070***; (0.179); 
Modification actions: TERM[F]: (6): 0.130; (0.185). 

Variables: MOD REQUIRES PMI;
Modification actions: PMT[A]: (1): 1.105***; (0.249); 
Modification actions: RATE[B]: (2): 1.380***; (0.249); 
Modification actions: PFGV[C]: (3): -14.947; (10.472); 
Modification actions: PFBR[D]: (4): 0.359; (0.946); 
Modification actions: CAP[E]: (5): 1.467***; (0.250); 
Modification actions: TERM[F]: (6): 1.224***; (0.258). 

Variables: MOD STARTED, 2010Q1;
Modification actions: PMT[A]: (1): 0.318; (0.314); 
Modification actions: RATE[B]: (2): 0.442; (0.316); 
Modification actions: PFGV[C]: (3): -11.125; (9.411); 
Modification actions: PFBR[D]: (4): 2.138**; (0.936); 
Modification actions: CAP[E]: (5): -0.230; (0.316); 
Modification actions: TERM[F]: (6): 0.502; (0.324). 

Variables: MOD STARTED, 2010Q2;
Modification actions: PMT[A]: (1): 0.439; (0.311); 
Modification actions: RATE[B]: (2): 0.668**; (0.313); 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): 2.455**; (0.957); 
Modification actions: CAP[E]: (5): 0.004; (0.313); 
Modification actions: TERM[F]: (6): 0.931***; (0.320). 

Variables: LTV: 70 to <80, AT ORIGN;
Modification actions: PMT[A]: (1): 1.399***; (0.243); 
Modification actions: RATE[B]: (2): 1.299***; (0.242); 
Modification actions: PFGV[C]: (3): 0.384; (2.798); 
Modification actions: PFBR[D]: (4): 0.962; (0.756); 
Modification actions: CAP[E]: (5): 1.284***; (0.243); 
Modification actions: TERM[F]: (6): 1.371***; (0.250). 

Variables: LTV: 80, AT ORIGN;
Modification actions: PMT[A]: (1): 2.082***; (0.255); 
Modification actions: RATE[B]: (2): 2.190***; (0.254); 
Modification actions: PFGV[C]: (3): 3.036; (3.085); 
Modification actions: PFBR[D]: (4): 1.334*; (0.752); 
Modification actions: CAP[E]: (5): 1.859***; (0.256); 
Modification actions: TERM[F]: (6): 2.136***; (0.263). 

Variables: LTV: 81 to <90, AT ORIGN;
Modification actions: PMT[A]: (1): 2.996***; (0.321); 
Modification actions: RATE[B]: (2): 2.814***; (0.321); 
Modification actions: PFGV[C]: (3): 7.908; (7.359); 
Modification actions: PFBR[D]: (4): 1.119; (0.880); 
Modification actions: CAP[E]: (5): 2.086***; (0.322); 
Modification actions: TERM[F]: (6): 2.318***; (0.335). 

Variables: LTV: 90 to <100, AT ORIGN;
Modification actions: PMT[A]: (1): 3.585***; (0.311); 
Modification actions: RATE[B]: (2): 3.415***; (0.311); 
Modification actions: PFGV[C]: (3): 23.065**; (11.156); 
Modification actions: PFBR[D]: (4): 1.276; (0.872); 
Modification actions: CAP[E]: (5): 2.612***; (0.312); 
Modification actions: TERM[F]: (6): 2.878***; (0.323). 

Variables: LTV: 100, AT ORIGN;
Modification actions: PMT[A]: (1): 4.874***; (0.333); 
Modification actions: RATE[B]: (2): 4.916***; (0.333); 
Modification actions: PFGV[C]: (3): -5.685; (13.573); 
Modification actions: PFBR[D]: (4): 0.989; (0.965); 
Modification actions: CAP[E]: (5): 4.119***; (0.334); 
Modification actions: TERM[F]: (6): 4.238***; (0.347). 

Variables: RATE, AT ORIGN (bps);
Modification actions: PMT[A]: (1): 0.006***; (0.001); 
Modification actions: RATE[B]: (2): 0.007***; (0.001); 
Modification actions: PFGV[C]: (3): -0.047**; (0.020); 
Modification actions: PFBR[D]: (4): -0.001; (0.001); 
Modification actions: CAP[E]: (5): -0.009***; (0.001); 
Modification actions: TERM[F]: (6): 0.001; (0.001). 

Variables: UPB, AT ORIGN (LOG);
Modification actions: PMT[A]: (1): 2.082***; (0.242); 
Modification actions: RATE[B]: (2): 1.641***; (0.243); 
Modification actions: PFGV[C]: (3): 1.944; (4.701); 
Modification actions: PFBR[D]: (4): 2.767***; (0.739); 
Modification actions: CAP[E]: (5): 2.250***; (0.243); 
Modification actions: TERM[F]: (6): 2.016***; (0.250). 

Variables: INVESTOR: PRIV-LABEL SEC;
Modification actions: PMT[A]: (1): 3.125***; (0.221); 
Modification actions: RATE[B]: (2): 3.328***; (0.221); 
Modification actions: PFGV[C]: (3): -6.781; (9.231); 
Modification actions: PFBR[D]: (4): 0.763; (0.601); 
Modification actions: CAP[E]: (5): 1.522***; (0.221); 
Modification actions: TERM[F]: (6): 1.580***; (0.235). 

Variables: INVESTOR: PORTFOLIO; 
Modification actions: PMT[A]: (1): -0.267; (0.270); 
Modification actions: RATE[B]: (2): -0.642**; (0.270); 
Modification actions: PFGV[C]: (3): [Empty]; 
Modification actions: PFBR[D]: (4): [Empty]; 
Modification actions: CAP[E]: (5): -1.373***; (0.274); 
Modification actions: TERM[F]: (6): -0.579**; (0.284). 

Variables: CONDO; 
Modification actions: PMT[A]: (1): 1.687***; (0.304); 
Modification actions: RATE[B]: (2): 1.336***; (0.303); 
Modification actions: PFGV[C]: (3): -7.933; (6.017); 
Modification actions: PFBR[D]: (4): 1.766**; (0.824); 
Modification actions: CAP[E]: (5): 1.894***; (0.305); 
Modification actions: TERM[F]: (6): 1.597***; (0.315). 

Variables: OTHER HOUSING;
Modification actions: PMT[A]: (1): 0.468; (0.383); 
Modification actions: RATE[B]: (2): 0.388; (0.380); 
Modification actions: PFGV[C]: (3): -28.101**; (13.093); 
Modification actions: PFBR[D]: (4): -2.324*; (1.362); 
Modification actions: CAP[E]: (5): 0.561; (0.384); 
Modification actions: TERM[F]: (6): 0.498' (0.407). 

Variables: CONSTANT; 
Modification actions: PMT[A]: (1): -15.997***; (2.946); 
Modification actions: RATE[B]: (2): -19.942***; (2.996); 
Modification actions: PFGV[C]: (3): 39.377; (69.676); 
Modification actions: PFBR[D]: (4): -38.042***; (9.650); 
Modification actions: CAP[E]: (5): -33.487***; (2.951); 
Modification actions: TERM[F]: (6): -26.933***; (3.027). 

Variables: Origination year fixed-effects;
Modification actions: PMT[A]: (1): Yes; 
Modification actions: RATE[B]: (2): Yes; 
Modification actions: PFGV[C]: (3): Yes; 
Modification actions: PFBR[D]: (4): Yes; 
Modification actions: CAP[E]: (5): Yes; 
Modification actions: TERM[F]: (6): Yes. 

Variables: Zip code fixed-effects;
Modification actions: PMT[A]: (1): Yes; 
Modification actions: RATE[B]: (2): Yes; 
Modification actions: PFGV[C]: (3): Yes; 
Modification actions: PFBR[D]: (4): Yes; 
Modification actions: CAP[E]: (5): Yes; 
Modification actions: TERM[F]: (6): Yes. 

Variables: Baseline redefault rate;
Modification actions: PMT[A]: (1): 15%; 
Modification actions: RATE[B]: (2): 15%; 
Modification actions: PFGV[C]: (3): 8%; 
Modification actions: PFBR[D]: (4): 12%; 
Modification actions: CAP[E]: (5): 15%; 
Modification actions: TERM[F]: (6): 15%. 

Variables: Mean value of mod action;
Modification actions: PMT[A]: (1): 37%; 
Modification actions: RATE[B]: (2): 396 bps; 
Modification actions: PFGV[C]: (3): 17%; 
Modification actions: PFBR[D]: (4): 24%; 
Modification actions: CAP[E]: (5): 5%; 
Modification actions: TERM[F]: (6): 35 months. 

Variables: Prob>F;
Modification actions: PMT[A]: (1): 0.000; 
Modification actions: RATE[B]: (2): 0.000; 
Modification actions: PFGV[C]: (3): 0.000; 
Modification actions: PFBR[D]: (4): 0.000; 
Modification actions: CAP[E]: (5): 0.000; 
Modification actions: TERM[F]: (6): 0.000. 

Variables: Observations;
Modification actions: PMT[A]: (1): 253,320; 
Modification actions: RATE[B]: (2): 249,434; 
Modification actions: PFGV[C]: (3): 1,702; 
Modification actions: PFBR[D]: (4): 32,153; 
Modification actions: CAP[E]: (5): 250,538; 
Modification actions: TERM[F]: (6): 233,347. 

Variables: R-squared;
Modification actions: PMT[A]: (1): 0.150; 
Modification actions: RATE[B]: (2): 0.144; 
Modification actions: PFGV[C]: (3): 0.613; 
Modification actions: PFBR[D]: (4): 0.300; 
Modification actions: CAP[E]: (5): 0.153; 
Modification actions: TERM[F]: (6): 0.148. 

Variables: Adj. R-squared;
Modification actions: PMT[A]: (1): 0.0884; 
Modification actions: RATE[B]: (2): 0.0815; 
Modification actions: PFGV[C]: (3): 0.103; 
Modification actions: PFBR[D]: (4): 0.0916; 
Modification actions: CAP[E]: (5): 0.0915; 
Modification actions: TERM[F]: (6): 0.0819. 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
the Bureau of Labor Statistics, and Treasury. 

Note: *, **, and *** denote two-tailed significance at 10 percent, 5 
percent, and 1 percent or better, respectively. 

[A] PMT=Payment change (%): 

[B] RATE=Rate change (bps): 

[C] PFGV=Principal forgiveness (%): 

[D] PFBR=Principal forbearance (%): 

[E] CAP=Capitalization (%): 

[F] TERM=Term change (months). 

[End of table] 

Trade-off between reductions in monthly payments and redefault rates: 

Using the loans from the CoreLogic data, we estimated the impact of 
decreases in monthly payments on redefault within 6 months of 
modification, limiting the data to payment decreases and within set 
ranges. These included payment decreases--0 percent to less than 10 
percent (the reference category), 10 percent to less than 20 percent, 
20 percent to less than 30 percent, 30 percent to less than 40 
percent, 40 percent to less than 50 percent, 50 percent to less than 
60 percent, and more than 60 percent. We also included all the 
controls used in the previous estimates (see table 22). An abridged 
version of the estimates is presented in table 26 (only for the 
buckets of payment decreases). The first bucket is used as the 
reference group, and the reported estimates are marginal effects 
(percentage point differences). The standard errors are presented in 
parentheses, and *, **, and *** denote two-tailed significance at 10 
percent, 5 percent, and 1 percent or better, respectively. The 
relationship between the payment decreases and redefault rate is shown 
in figure 21, based on the estimates in column 1 of table 27. We also 
summarize below the results for the separate modification actions in 
columns 2 to 5 of table 27. 

Table 26: Probability Regression Estimates of Redefaults for Decreases 
in Monthly Payments: Loan Modifications in CoreLogic Data: 

Dependent variable: redefault (90 DPD or more) within 6 months of 
modification, 0/1 x 100: 

Variables[A]: PAYMENT DECREASE: 10% to 19%; 
Estimate: -3.790***; (0.478). 

Variables[A]: PAYMENT DECREASE: 20% to 29%; 
Estimate: -3.814***; (0.532). 

Variables[A]: PAYMENT DECREASE: 30% to 39%; 
Estimate: -6.559***' (0.627). 

Variables[A]: PAYMENT DECREASE: 40% to 49%; 
Estimate: -7.984***; (0.689). 

Variables[A]: PAYMENT DECREASE: 50% to 59%; 
Estimate: -7.541***; (0.764). 

Variables[A]: PAYMENT DECREASE: 60% OR MORE; 
Estimate: -7.697***; (0.855). 

Source: GAO analysis of data from CoreLogic and its Home Price Index, 
and the Bureau of Labor Statistics. 

Note: *, **, and *** denote two-tailed significance at 10 percent, 5 
percent, and 1 percent or better, respectively: 

[A] The reference category for the payment decrease is "less than 10 
percent." 

[End of table] 

Table 27: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Modification Action 
and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault;
Payment reduction (1): Redefault: 16%; 
Payment reduction (1): Loans: [Empty];
Rate reduction (2): Redefault: 15%; 
Rate reduction (2): Loans: [Empty];
Balance reduction (3): Redefault: 11%; 
Balance reduction (3): Loans: [Empty];
Capitalization (4): Redefault: 16%; 
Capitalization (4): Loans: [Empty];
Term extension (5): Redefault: 18%; 
Term extension (5): Loans: [Empty]. 

Monthly payment reduction: Less than 10%;
Payment reduction (1): Redefault: 20%; 
Payment reduction (1): Loans: 18%;
Rate reduction (2): Redefault: 20%; 
Rate reduction (2): Loans: 16%;
Balance reduction (3): Redefault: 16%; 
Balance reduction (3): Loans: 4%;
Capitalization (4): Redefault: 22%; 
Capitalization (4): Loans: 20%;
Term extension (5): Redefault: 26%; 
Term extension (5): Loans: 16%. 

Monthly payment reduction: 10% to 19%;
Payment reduction (1): Redefault: 17%; 
Payment reduction (1): Loans: 21%;
Rate reduction (2): Redefault: 16%; 
Rate reduction (2): Loans: 21%;
Balance reduction (3): Redefault: 15%[A]; 
Balance reduction (3): Loans: 3%;
Capitalization (4): Redefault: 17%; 
Capitalization (4): Loans: 21%;
Term extension (5): Redefault: 20%; 
Term extension (5): Loans: 19%. 

Monthly payment reduction: 20% to 29%;
Payment reduction (1): Redefault: 16%; 
Payment reduction (1): Loans: 20%;
Rate reduction (2): Redefault: 16%; 
Rate reduction (2): Loans: 20%;
Balance reduction (3): Redefault: 20%[A]; 
Balance reduction (3): Loans: 3%;
Capitalization (4): Redefault: 17%; 
Capitalization (4): Loans: 20%;
Term extension (5): Redefault: 20%; 
Term extension (5): Loans: 19%. 

Monthly payment reduction: 30% to 39%;
Payment reduction (1): Redefault: 14%; 
Payment reduction (1): Loans: 15%;
Rate reduction (2): Redefault: 13%; 
Rate reduction (2): Loans: 15%;
Balance reduction (3): Redefault: 9%[A]; 
Balance reduction (3): Loans: 4%;
Capitalization (4): Redefault: 14%; 
Capitalization (4): Loans: 16%;
Term extension (5): Redefault: 14%; 
Term extension (5): Loans: 12%. 

Monthly payment reduction: 40% to 49%;
Payment reduction (1): Redefault: 12%; 
Payment reduction (1): Loans: 12%;
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: 13%;
Balance reduction (3): Redefault: 9%[A]; 
Balance reduction (3): Loans: 12%;
Capitalization (4): Redefault: 12%; 
Capitalization (4): Loans: 13%;
Term extension (5): Redefault: 12%; 
Term extension (5): Loans: 14%. 

Monthly payment reduction: 50% to 59%;
Payment reduction (1): Redefault: 13%; 
Payment reduction (1): Loans: 8%;
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: 9%;
Balance reduction (3): Redefault: 10%[A]; 
Balance reduction (3): Loans: 36%;
Capitalization (4): Redefault: 12%; 
Capitalization (4): Loans: 7%;
Term extension (5): Redefault: 12%; 
Term extension (5): Loans: 14%. 

Monthly payment reduction: 60% or more;
Payment reduction (1): Redefault: 13%; 
Payment reduction (1): Loans: 6%;
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: 6%;
Balance reduction (3): Redefault: 11%[A]; 
Balance reduction (3): Loans: 38%;
Capitalization (4): Redefault: 10%; 
Capitalization (4): Loans: 4%;
Term extension (5): Redefault: 14%; 
Term extension (5): Loans: 6%. 

Monthly payment reduction: Observations;
Payment reduction (1): Redefault: 71856 (100%); 
Rate reduction (2): Redefault: 69226 (96%); 
Balance reduction (3): Redefault: 3936 (5%); 
Capitalization (4): Redefault: 59557 (83%); 
Term extension (5): Redefault: 26683 (37%). 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[End of table] 

As shown in figure 21, there is a tradeoff between decreases in 
monthly payments as a result of modification actions and the redefault 
rate. That is, as the payments decrease, the redefault rate generally 
decreases, but only up to a certain point. As an example, irrespective 
of the modification action (except for balance reduction), the 
redefault rate is 12 percent for loans receiving a 40-percent 
reduction (the lowest redefault rate), but rises to 20 percent for 
loans receiving a reduction of less than 10 percent. The data also 
show that the majority of the loans received payment reductions of 
less than 30 percent. We obtain similar effects for the specific 
modification actions--rate reduction, balance reduction, 
capitalization, and term extension. The modification actions generally 
result in lower redefault rates as the payment reductions increase, 
except for balance reductions (see figure 21). Some of these actions 
were much more commonly used than others--for example, interest rate 
reductions and capitalization were used far more frequently than term 
extensions and reducing the balance (see figure 21). Also, the 
majority of the loans receive payment reductions of less than 30 
percent, except for balance reductions which generally result in 
payment reductions exceeding 40 percent. 

Figure 21: Volume of Modification Action, Predicted Redefault Rates, 
and Distribution of Payment Reductions (within 6 months of 
modification), by Modification Action and Size of Payment Reduction: 

[Refer to PDF for image: 5 combination line and vertical bar graphs] 

Payment reduction: 100% of loans: 
Baseline redefault rate: 16%. 

Monthly payment reduction: 
Less than 10%: 18%; 
Predicted redefault rate: 20%; 

10% to 19%: 21%; 
Predicted redefault rate: 17%; 

20% to 29%: 20%; 
Predicted redefault rate: 16%; 

30% to 39%: 15%; 
Predicted redefault rate: 14%; 

40% to 49%: 12%; 
Predicted redefault rate: 12%; 

50% to 59%: 8%; 
Predicted redefault rate: 13%; 

60% or more: 6%; 
Predicted redefault rate: 13%. 

Rate reduction: 96% of loans: 
Baseline redefault rate: 15%. 

Monthly payment reduction: 
Less than 10%: 16%; 
Predicted redefault rate: 20%; 

10% to 19%: 21%; 
Predicted redefault rate: 16%; 

20% to 29%: 20%; 
Predicted redefault rate: 16%; 

30% to 39%: 15%; 
Predicted redefault rate: 13%; 

40% to 49%: 13%; 
Predicted redefault rate: 12%; 

50% to 59%: 9%; 
Predicted redefault rate: 12%; 

60% or more: 6%; 
Predicted redefault rate: 12%. 

Balance reduction: 5% of loans: 
Baseline redefault rate: 11%. 

Monthly payment reduction: 
Less than 10%: 4%; 
Predicted redefault rate (not significant at the 10% level): 16%; 

10% to 19%: 3%; 
Predicted redefault rate (not significant at the 10% level): 15%; 

20% to 29%: 3%; 
Predicted redefault rate (not significant at the 10% level): 29%; 

30% to 39%: 4%; 
Predicted redefault rate (not significant at the 10% level): 9%; 

40% to 49%: 12%; 
Predicted redefault rate (not significant at the 10% level): 9%; 

50% to 59%: 36%; 
Predicted redefault rate (not significant at the 10% level): 10%; 

60% or more: 38%; 
Predicted redefault rate (not significant at the 10% level): 11%. 

Capitalization: 83% of loans: 
Baseline redefault rate: 16%. 

Monthly payment reduction: 
Less than 10%: 20%; 
Predicted redefault rate: 22%; 

10% to 19%: 21%; 
Predicted redefault rate: 17%; 

20% to 29%: 20%; 
Predicted redefault rate: 17%; 

30% to 39%: 16%; 
Predicted redefault rate: 14%; 

40% to 49%: 13%; 
Predicted redefault rate: 12%; 

50% to 59%: 7%; 
Predicted redefault rate: 12%; 

60% or more: 4%; 
Predicted redefault rate: 10%. 

Term extension: 37% of loans: 
Baseline redefault rate: 18%. 

Monthly payment reduction: 
Less than 10%: 16%; 
Predicted redefault rate: 26%; 

10% to 19%: 19%; 
Predicted redefault rate: 20%; 

20% to 29%: 19%; 
Predicted redefault rate: 20%; 

30% to 39%: 12%; 
Predicted redefault rate: 14%; 

40% to 49%: 14%; 
Predicted redefault rate: 12%; 

50% to 59%: 14%; 
Predicted redefault rate: 12%; 

60% or more: 6%; 
Predicted redefault rate: 14%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[End of figure] 

Several borrower and loan characteristics at modification strongly 
predict redefaults, but their impacts differ according to how much 
payments are reduced and the type of loan or borrower characteristics. 
Overall, borrower and loan characteristics at the time of modification 
are predictive of redefault. Large payment reductions generally help 
borrowers with high credit risks more than they help other borrowers. 
High-risk borrowers generally have high CLTV ratios, high unemployment 
rates after modification, and increased delinquency prior to 
modification. These borrowers are sensitive to large payment 
reductions possibly because they cannot afford their mortgages, but we 
could not control for affordability in the model because of a lack of 
usable data on the debt-to-income (DTI) ratio. 

We find that payment reductions are more effective in reducing 
redefault rates for borrowers with high CLTV ratios, especially those 
with ratios above 125 percent (see table 28 and figure 22). For 
instance, the baseline redefault rate is 18 percent for borrowers with 
a CLTV of at least 125 percent and 13 percent for those with a CLTV of 
less than 95 percent. With a payment reduction of less than 10 
percent, the redefault rates are 25 percent and 16 percent for these 
two groups, respectively, but fall to 16 percent and 12 percent for 
payment reductions of 30 percent to 39 percent. Among the loans we 
analyzed, about a third had a CLTV of less than 95 percent and about a 
quarter had a CLTV of 125 percent or more. For all CLTV categories, 
the majority of the loans received payment reductions of less than 30 
percent. 

Table 28: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Borrowers' Home 
Equity Position and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault;
CLTV: less than 95% (1): Redefault: 13%; 
CLTV: less than 95% (1): Loans: [Empty];
CLTV: 95%-114% (2): Redefault: 16%; 
CLTV: 95%-114% (2): Loans: [Empty];
CLTV: 115-124% (3): Redefault: 17%; 
CLTV: 115-124% (3): Loans: [Empty];
CLTV: 125% or more (4): Redefault: 18%; 
CLTV: 125% or more (4): Loans: [Empty]. 

Monthly payment reduction: Less than 10%;
CLTV: less than 95% (1): Redefault: 16%; 
CLTV: less than 95% (1): Loans: 16%;
CLTV: 95%-114% (2): Redefault: 19%; 
CLTV: 95%-114% (2): Loans: 19%;
CLTV: 115-124% (3): Redefault: 19%; 
CLTV: 115-124% (3): Loans: 21%;
CLTV: 125% or more (4): Redefault: 25%; 
CLTV: 125% or more (4): Loans: 18%. 

Monthly payment reduction: 10% to 19%;
CLTV: less than 95% (1): Redefault: 14%; 
CLTV: less than 95% (1): Loans: 20%;
CLTV: 95%-114% (2): Redefault: 16%; 
CLTV: 95%-114% (2): Loans: 23%;
CLTV: 115-124% (3): Redefault: 16%[A]; 
CLTV: 115-124% (3): Loans: 23%;
CLTV: 125% or more (4): Redefault: 20%; 
CLTV: 125% or more (4): Loans: 19%. 

Monthly payment reduction: 20% to 29%;
CLTV: less than 95% (1): Redefault: 14%; 
CLTV: less than 95% (1): Loans: 20%;
CLTV: 95%-114% (2): Redefault: 16%; 
CLTV: 95%-114% (2): Loans: 20%;
CLTV: 115-124% (3): Redefault: 20%[A]; 
CLTV: 115-124% (3): Loans: 18%;
CLTV: 125% or more (4): Redefault: 19%; 
CLTV: 125% or more (4): Loans: 20%. 

Monthly payment reduction: 30% to 39%;
CLTV: less than 95% (1): Redefault: 12%; 
CLTV: less than 95% (1): Loans: 15%;
CLTV: 95%-114% (2): Redefault: 14%; 
CLTV: 95%-114% (2): Loans: 14%;
CLTV: 115-124% (3): Redefault: 16%[A]; 
CLTV: 115-124% (3): Loans: 14%;
CLTV: 125% or more (4): Redefault: 16%; 
CLTV: 125% or more (4): Loans: 15%. 

Monthly payment reduction: 40% to 49%;
CLTV: less than 95% (1): Redefault: 9%; 
CLTV: less than 95% (1): Loans: 12%;
CLTV: 95%-114% (2): Redefault: 13%; 
CLTV: 95%-114% (2): Loans: 12%;
CLTV: 115-124% (3): Redefault: 14%; 
CLTV: 115-124% (3): Loans: 12%;
CLTV: 125% or more (4): Redefault: 13%; 
CLTV: 125% or more (4): Loans: 14%. 

Monthly payment reduction: 50% to 59%;
CLTV: less than 95% (1): Redefault: 11%; 
CLTV: less than 95% (1): Loans: 9%;
CLTV: 95%-114% (2): Redefault: 13%; 
CLTV: 95%-114% (2): Loans: 8%;
CLTV: 115-124% (3): Redefault: 12%; 
CLTV: 115-124% (3): Loans: 7%;
CLTV: 125% or more (4): Redefault: 14%; 
CLTV: 125% or more (4): Loans: 8%. 

Monthly payment reduction: 60% or more;
CLTV: less than 95% (1): Redefault: 11%; 
CLTV: less than 95% (1): Loans: 7%;
CLTV: 95%-114% (2): Redefault: 14%; 
CLTV: 95%-114% (2): Loans: 5%;
CLTV: 115-124% (3): Redefault: 12%; 
CLTV: 115-124% (3): Loans: 5%;
CLTV: 125% or more (4): Redefault: 13%; 
CLTV: 125% or more (4): Loans: 6%. 

Monthly payment reduction: Observations;
CLTV: less than 95% (1): Redefault: 24522 (34%); 
CLTV: 95%-114% (2): Redefault: 20402 (28%); 
CLTV: 115-124% (3): Loans: 7802 (11%); 
CLTV: 125% or more (4): Redefault: 19447 (27%). 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Note: CLTV = current loan-to-value ratio. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[End of table] 

Figure 22: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Borrowers' Home 
Equity Position and Size of Payment Reduction: 

[Refer to PDF for image: 4 combination line and vertical bar graphs] 

LTV at time of modification: Less than 95%: 34% of loans: 
Baseline redefault rate: 13%. 

Monthly payment reduction: 
Less than 10%: 16%; 
Predicted redefault rate: 16%; 

10% to 19%: 20%; 
Predicted redefault rate: 14%; 

20% to 29%: 20%; 
Predicted redefault rate: 14%; 

30% to 39%: 15%; 
Predicted redefault rate: 12%; 

40% to 49%: 12%; 
Predicted redefault rate: 9%; 

50% to 59%: 9%; 
Predicted redefault rate: 11%; 

60% or more: 7%; 
Predicted redefault rate: 11%. 

LTV at time of modification: 95%-114%: 28% of loans: 
Baseline redefault rate: 16%. 

Monthly payment reduction: 
Less than 10%: 19%; 
Predicted redefault rate: 19%; 

10% to 19%: 23%; 
Predicted redefault rate: 16%; 

20% to 29%: 20%; 
Predicted redefault rate: 16%; 

30% to 39%: 14%; 
Predicted redefault rate: 14%; 

40% to 49%: 12%; 
Predicted redefault rate: 13%; 

50% to 59%: 8%; 
Predicted redefault rate: 13%; 

60% or more: 5%; 
Predicted redefault rate: 14%. 

LTV at time of modification: 115%-124%: 11% of loans: 
Baseline redefault rate: 17%. 

Monthly payment reduction: 
Less than 10%: 21%; 
Predicted redefault rate: 19%; 

10% to 19%: 23%; 
Predicted redefault rate: 16%; 

20% to 29%: 18%; 
Predicted redefault rate (not significant at the 10% level): 20%; 

30% to 39%: 14%; 
Predicted redefault rate: 16%; 

40% to 49%: 12%; 
Predicted redefault rate: 14%; 

50% to 59%: 7%; 
Predicted redefault rate: 12%; 

60% or more: 5%; 
Predicted redefault rate: 12%. 

LTV at time of modification: 125% or more: 27% of loans: 
Baseline redefault rate: 18%. 

Monthly payment reduction: 
Less than 10%: 18%; 
Predicted redefault rate: 25%; 

10% to 19%: 19%; 
Predicted redefault rate: 20%; 

20% to 29%: 20%; 
Predicted redefault rate: 19%; 

30% to 39%: 15%; 
Predicted redefault rate: 16%; 

40% to 49%: 14%; 
Predicted redefault rate: 13%; 

50% to 59%: 8%; 
Predicted redefault rate: 14%; 

60% or more: 6%; 
Predicted redefault rate: 13%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[End of figure] 

Payment reductions are more effective in reducing redefault rates for 
borrowers in areas where the unemployment rate increased after 
modification (see table 29 and figure 23). For instance, the baseline 
redefault rate is 18 percent for borrowers who are located in areas 
that experienced higher unemployment rates and 13 percent for those 
experiencing lower unemployment rates. With a payment reduction of 
between 50 to 59 percent, the redefault rate reduces to about 14 and 
12 percent, respectively. Among the loans we analyzed, the proportion 
of loans located in areas with increases in or no change in 
unemployment rates was slightly lower than those located in areas with 
decreases in unemployment rates. For both unemployment categories, the 
majority of the loans received payment reductions of less than 30 
percent. 

Table 29: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Unemployment Rate and 
Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault;
Increase in unemployment rate[A](1): Redefault: 18%; 
Increase in unemployment rate[A](1)): Loans: [Empty];
Decrease in unemployment rate (2): Redefault: 13%; 
Decrease in unemployment rate (2): Loans: [Empty]. 

Monthly payment reduction: Less than 10%;
Increase in unemployment rate[A](1): Redefault: 23%; 
Increase in unemployment rate[A](1: Loans: 19%;
Decrease in unemployment rate (2): Redefault: 18%; 
Decrease in unemployment rate (2): Loans: 17%. 

Monthly payment reduction: 10% to 19%;
Increase in unemployment rate[A](1): Redefault: 20%; 
Increase in unemployment rate[A](1): Loans: 22%;
Decrease in unemployment rate (2): Redefault: 13%; 
Decrease in unemployment rate (2): Loans: 20%. 

Monthly payment reduction: 20% to 29%;
Increase in unemployment rate[A](1): Redefault: 20%; 
Increase in unemployment rate[A](1): Loans: 23%;
Decrease in unemployment rate (2): Redefault: 13%; 
Decrease in unemployment rate (2): Loans: 18%. 

Monthly payment reduction: 30% to 39%;
Increase in unemployment rate[A][(1)] 1): Redefault: 15%; 
Increase in unemployment rate[A][(1)] 1): Loans: 14%;
Decrease in unemployment rate (2): Redefault: 12%; 
Decrease in unemployment rate (2): Loans: 15%. 

Monthly payment reduction: 40% to 49%;
Increase in unemployment rate[A](1): Redefault: 14%; 
Increase in unemployment rate[A](1): Loans: 11%;
Decrease in unemployment rate (2): Redefault: 11%; 
Decrease in unemployment rate (2): Loans: 14%. 

Monthly payment reduction: 50% to 59%;
Increase in unemployment rate[A](1): Redefault: 14%; 
Increase in unemployment rate[A](1): Loans: 7%;
Decrease in unemployment rate (2): Redefault: 12%; 
Decrease in unemployment rate (2): Loans: 10%. 

Monthly payment reduction: 60% or more;
Increase in unemployment rate[A](1): Redefault: 14%; 
Increase in unemployment rate[A](1): Loans: 5%;
Decrease in unemployment rate (2): Redefault: 11%; 
Decrease in unemployment rate (2): Loans: 7%. 

Monthly payment reduction: Observations;
Increase in unemployment rate[A](1): Redefault: 33435 (47%);
Decrease in unemployment rate (2): Redefault: 38421 (53%). 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[A] The increase in the unemployment rate includes "no change." 

[End of table] 

Figure 23: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Unemployment Rate 6 
months after Modification and Size of Payment Reduction: 

[Refer to PDF for image: 2 combination line and vertical bar graphs] 

Change in unemployment rate: 

Increase: 47% of loans: 
Baseline redefault rate: 18%. 

Monthly payment reduction: 
Less than 10%: 19%; 
Predicted redefault rate: 23%; 

10% to 19%: 22%; 
Predicted redefault rate: 20%; 

20% to 29%: 23%; 
Predicted redefault rate: 20%; 

30% to 39%: 14%; 
Predicted redefault rate: 15%; 

40% to 49%: 11%; 
Predicted redefault rate: 14%; 

50% to 59%: 7%; 
Predicted redefault rate: 14%; 

60% or more: 5%; 
Predicted redefault rate: 14%. 

Decrease: 53% of loans: 
Baseline redefault rate: 17%. 

Monthly payment reduction: 
Less than 10%: 17%; 
Predicted redefault rate: 18%; 

10% to 19%: 20%; 
Predicted redefault rate: 13%; 

20% to 29%: 18%; 
Predicted redefault rate: 13%; 

30% to 39%: 15%; 
Predicted redefault rate: 12%; 

40% to 49%: 14%; 
Predicted redefault rate: 11%; 

50% to 59%: 10%; 
Predicted redefault rate: 12%; 

60% or more: 7%; 
Predicted redefault rate: 11%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[End of figure] 

Payment reductions are more effective for borrowers who are 90 days or 
more past due (see table 30 and figure 24). For instance, the baseline 
redefault rate is 17 percent for borrowers who are 90 days or more 
delinquent. But with a payment reduction of at least 40 percent, the 
redefault rate reduces to 13 percent. The payment reductions are 
generally not very effective for the other borrowers, including those 
in foreclosure. Among the loans we analyzed, almost three-quarters 
were 90 days or more past due. For all loan performance categories, 
the majority of the loans received payment reductions of less than 30 
percent. 

Table 30: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Loan Performance at 
Modification and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault; 
DPD: < 60 (1): Redefault: 9%; 
DPD: < 60 (1): Loans: [Empty]; 
DPD: 60-89 (2): Redefault: 9%; 
DPD: 60-89 (2): Loans: [Empty]; 
DPD: >=90 (3): Redefault: 17%; 
DPD: >=90 (3): Loans: [Empty]; 
DPD: FCL (4): Redefault: 19%; 
DPD: FCL (4): Loans: [Empty]. 

Monthly payment reduction: Less than 10%; 
DPD: < 60 (1): Redefault: 9%; 
DPD: < 60 (1): Loans: 14%; 
DPD: 60-89 (2): Redefault: 15%; 
DPD: 60-89 (2): Loans: 12%; 
DPD: >=90 (3): Redefault: 22%; 
DPD: >=90 (3): Loans: 18%; 
DPD: FCL (4): Redefault: 19%; 
DPD: FCL (4): Loans: 25%. 

Monthly payment reduction: 10% to 19%; 
DPD: < 60 (1): Redefault: 8%[A]; 
DPD: < 60 (1): Loans: 26%; 
DPD: 60-89 (2): Redefault: 12%[A]; 
DPD: 60-89 (2): Loans: 24%; 
DPD: >=90 (3): Redefault: 18%; 
DPD: >=90 (3): Loans: 20%; 
DPD: FCL (4): Redefault: 21%[A]; 
DPD: FCL (4): Loans: 19%. 

Monthly payment reduction: 20% to 29%; 
DPD: < 60 (1): Redefault: 10%[A]; 
DPD: < 60 (1): Loans: 31%; 
DPD: 60-89 (2): Redefault: 7%; 
DPD: 60-89 (2): Loans: 24%; 
DPD: >=90 (3): Redefault: 18%; 
DPD: >=90 (3): Loans: 18%; 
DPD: FCL (4): Redefault: 18%[A]; 
DPD: FCL (4): Loans: 15%. 

Monthly payment reduction: 30% to 39%; 
DPD: < 60 (1): Redefault: 8%[A]; 
DPD: < 60 (1): Loans: 13%; 
DPD: 60-89 (2): Redefault: 5%; 
DPD: 60-89 (2): Loans: 18%; 
DPD: >=90 (3): Redefault: 15%; 
DPD: >=90 (3): Loans: 15%; 
DPD: FCL (4): Redefault: 18%[A]; 
DPD: FCL (4): Loans: 14%. 

Monthly payment reduction: 40% to 49%; 
DPD: < 60 (1): Redefault: 9%a; 
DPD: < 60 (1): Loans: 8%; 
DPD: 60-89 (2): Redefault: 7%; 
DPD: 60-89 (2): Loans: 13%; 
DPD: >=90 (3): Redefault: 13%; 
DPD: >=90 (3): Loans: 13%; 
DPD: FCL (4): Redefault: 19%[A]; 
DPD: FCL (4): Loans: 12%. 

Monthly payment reduction: 50% to 59%; 
DPD: < 60 (1): Redefault: 9%a; 
DPD: < 60 (1): Loans: 5%; 
DPD: 60-89 (2): Redefault: 8%[A]; 
DPD: 60-89 (2): Loans: 6%; 
DPD: >=90 (3): Redefault: 14%; 
DPD: >=90 (3): Loans: 9%; 
DPD: FCL (4): Redefault: 18%[A]; 
DPD: FCL (4): Loans: 8%. 

Monthly payment reduction: 60% or more; 
DPD: < 60 (1): Redefault: 15%; 
DPD: < 60 (1): Loans: 3%; 
DPD: 60-89 (2): Redefault: 8%[A]; 
DPD: 60-89 (2): Loans: 3%; 
DPD: >=90 (3): Redefault: 13%; 
DPD: >=90 (3): Loans: 6%; 
DPD: FCL (4): Redefault: 14%[A]; 
DPD: FCL (4): Loans: 7%. 

Monthly payment reduction: Observations; 
DPD: < 60 (1): Redefault: 8543 (12%); 
DPD: 60-89 (2): Redefault: 4393 (6%); 
DPD: >=90 (3): Redefault: 51970 (72%); 
DPD: FCL (4): Redefault: 6950 (10%). 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Note: DPD = days past due prior to modification. FCL = loan is in 
foreclosure. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[End of table] 

Figure 24: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification), by Loan Performance at 
Modification and Size of Payment Reduction: 

[Refer to PDF for image: 4 combination line and vertical bar graphs] 

Performance status: Less than 60 days past due (including current 
loans): 12% of loans: 
Baseline redefault rate: 9%. 

Monthly payment reduction: 
Less than 10%: 14%; 
Predicted redefault rate: 9%; 

10% to 19%: 26%; 
Predicted redefault rate: 8%; 

20% to 29%: 31%; 
Predicted redefault rate (not significant at the 10% level): 10%; 

30% to 39%: 13%; 
Predicted redefault rate (not significant at the 10% level): 8%; 

40% to 49%: 8%; 
Predicted redefault rate (not significant at the 10% level): 9%; 

50% to 59%: 4%; 
Predicted redefault rate (not significant at the 10% level): 9%; 

60% or more: 3%; 
Predicted redefault rate: 15%. 

Performance status: 60-89 days past due: 6% of loans: 
Baseline redefault rate: 9%. 

Monthly payment reduction: 
Less than 10%: 12%; 
Predicted redefault rate (not significant at the 10% level): 15%; 

10% to 19%: 24%; 
Predicted redefault rate: 12%; 

20% to 29%: 24%; 
Predicted redefault rate: 7%; 

30% to 39%: 18%; 
Predicted redefault rate: 5%; 

40% to 49%: 13%; 
Predicted redefault rate: 7%; 

50% to 59%: 6%; 
Predicted redefault rate (not significant at the 10% level): 8%; 

60% or more: 3%; 
Predicted redefault rate (not significant at the 10% level): 8%. 

Performance status: 90 days 0r more past due: 72% of loans: 
Baseline redefault rate: 17%. 

Monthly payment reduction: 
Less than 10%: 18%; 
Predicted redefault rate: 22%; 

10% to 19%: 20%; 
Predicted redefault rate: 18%; 

20% to 29%: 18%; 
Predicted redefault rate: 18%; 

30% to 39%: 15%; 
Predicted redefault rate: 15%; 

40% to 49%: 13%; 
Predicted redefault rate: 13%; 

50% to 59%: 9%; 
Predicted redefault rate: 14%; 

60% or more: 6%; 
Predicted redefault rate: 13%. 

Performance status: In foreclosure: 10% of loans: 
Baseline redefault rate: 19%. 

Monthly payment reduction: 
Less than 10%: 25%; 
Predicted redefault rate: 19%; 

10% to 19%: 19%; 
Predicted redefault rate: 21%; 

20% to 29%: 15%; 
Predicted redefault rate (not significant at the 10% level): 18%; 

30% to 39%: 14%; 
Predicted redefault rate (not significant at the 10% level): 18%; 

40% to 49%: 12%; 
Predicted redefault rate (not significant at the 10% level): 19%; 

50% to 59%: 8%; 
Predicted redefault rate (not significant at the 10% level): 18%; 

60% or more: 7%; 
Predicted redefault rate (not significant at the 10% level): 143%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[End of figure] 

Robustness Checks: 

To ensure that the results were reliable, we performed several checks 
of robustness for the main results reported for the CoreLogic data set 
in column 1 of table 22 for payment reductions. We find that the 
results of the checks are generally consistent with what we have 
reported. 

First, we estimated the model for different durations after the 
modifications--12 and 18 months--instead of 6 months.[Footnote 156] 
The baseline redefault rate is 35 percent within 12 months of 
modification, and a 23-percent (the average) reduction in payments 
decreases the redefault rate by 8 percentage points to 27 percent. 
Similarly, within 18 months of modification, the redefault rate 
decreases from a baseline of 51 percent to 45 percent for a payment 
reduction of 18 percent (the average). Second, as already indicated 
some loans had multiple modifications. Similar estimates were obtained 
when we used only the latest modification action for loans that 
received multiple modifications. Third, as in other studies, the data 
were limited to loans that entered the CoreLogic database within 3 
months of origination.[Footnote 157] This would help to reduce 
potential survivorship bias.[Footnote 158] Also, we restricted the 
sample to loans originated since January 2005, including those 
originated since the housing boom. For both of these cases, the 
results were similar to the main results. Fourth, the significance of 
the estimates was unchanged when we estimated robust standard errors. 
Finally, the results were unchanged when we clustered the standard 
errors by zip codes.[Footnote 159] 

To check if there were unobserved borrower characteristics that have 
not been accounted for in our analysis, we estimated the model across 
loans with characteristics of different quality based on FICO credit 
scores and delinquency status.[Footnote 160] We identified two groups 
of loans--relatively high-quality and low-quality loans. The rationale 
for this approach is that unobservable characteristics across the 
classes of loans of different quality should result in estimated 
redefault rates that differ in a predictable way. For instance, low-
quality loans would be more likely to redefault than high-quality 
loans, because screening on unobservable characteristics is less 
important for the latter pool of loans. But if the estimates show that 
the conditional redefault rates are similar or low-quality loans were 
less likely to redefault, then unobserved characteristics related to 
loan quality are likely not the reason for the redefaults. The 
robustness check suggests that the results are not likely to be biased 
by unobserved borrower characteristics. 

We also excluded loans owned or guaranteed by the enterprises and 
estimated the models. Loans owned or guaranteed by the enterprises 
differ from private-label securitized loans in terms of underwriting 
standards, default risk guarantee, servicer incentives, and 
modification restrictions. We conducted this analysis for prime loans 
only due to data limitations. The results were similar with the Fannie 
Mae and Freddie Mac loans excluded.[Footnote 161] We also provide 
predicted estimates of the redefault rates for payment reductions for 
different modification actions (payment reduction, rate reduction, 
balance reduction, capitalization and term extension) using data on 
subpopulations of loans--prime, subprime, enterprise, nonenterprise, 
FHA, and VA loans in tables 31 to 36 (see also figure 25).[Footnote 
162] 

We note that since the modification terms are not randomly determined, 
but rather may reflect some unobserved borrower and loan 
characteristics, the results, as in previous studies, should be 
considered as describing the associative relationship between the 
modification terms and redefault.: 

Table 31: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification) for Prime Loans 
(Excluding Government-Guaranteed and Enterprise Loans), by 
Modification Action and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault;
Payment reduction (1): Redefault: 14%; 
Payment reduction (1): Loans: [Empty];
Rate reduction (2): Redefault: 13%; 
Rate reduction (2): Loans: [Empty];
Balance reduction (3): Redefault: 10%; 
Balance reduction (3): Loans: [Empty];
Capitalization (4): Redefault: 15%; 
Capitalization (4): Loans: [Empty]; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 17%; 
Term extension (5): Redefault: [Empty]. 

Monthly payment reduction: Less than 10%;
Payment reduction (1): Redefault: 19%; 
Payment reduction (1): Loans: 12%;
Rate reduction (2): Redefault: 18%; 
Rate reduction (2): Loans: 10%;
Balance reduction (3): Redefault: 11%; 
Balance reduction (3): Loans: 4%;
Capitalization (4): Redefault: 21%; 
Capitalization (4): Loans: 13%; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 26%; 
Term extension (5): Redefault: 9%. 

Monthly payment reduction: 10% to 19%;
Payment reduction (1): Redefault: 16%; 
Payment reduction (1): Loans: 16%;
Rate reduction (2): Redefault: 16%; 
Rate reduction (2): Loans: 17%;
Balance reduction (3): Redefault: 16%[A]; 
Balance reduction (3): Loans: 3%;
Capitalization (4): Redefault: 17%; 
Capitalization (4): Loans: 17%; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 20%; 
Term extension (5): Redefault: 10%. 

Monthly payment reduction: 20% to 29%;
Payment reduction (1): Redefault: 16%; 
Payment reduction (1): Loans: 21%;
Rate reduction (2): Redefault: 15%; 
Rate reduction (2): Loans: 22%;
Balance reduction (3): Redefault: 19%[A]; 
Balance reduction (3): Loans: 2%;
Capitalization (4): Redefault: 17%; 
Capitalization (4): Loans: 22%; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 22%; 
Term extension (5): Redefault: 20%. 

Monthly payment reduction: 30% to 39%;
Payment reduction (1): Redefault: 13%; 
Payment reduction (1): Loans: 18%;
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: 18%;
Balance reduction (3): Redefault: 7%[A]; 
Balance reduction (3): Loans: 4%;
Capitalization (4): Redefault: 13%; 
Capitalization (4): Loans: 20%; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 14%; 
Term extension (5): Redefault: 14%. 

Monthly payment reduction: 40% to 49%;
Payment reduction (1): Redefault: 11%; 
Payment reduction (1): Loans: 15%;
Rate reduction (2): Redefault: 10%; 
Rate reduction (2): Loans: 16%;
Balance reduction (3): Redefault: 9%[A]; 
Balance reduction (3): Loans: 12%;
Capitalization (4): Redefault: 11%; 
Capitalization (4): Loans: 16%; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 13%; 
Term extension (5): Redefault: 18%. 

Monthly payment reduction: 50% to 59%;
Payment reduction (1): Redefault: 11%; 
Payment reduction (1): Loans: 10%;
Rate reduction (2): Redefault: 11%; 
Rate reduction (2): Loans: 11%;
Balance reduction (3): Redefault: 9%[A]; 
Balance reduction (3): Loans: 37%;
Capitalization (4): Redefault: 11%; 
Capitalization (4): Loans: 8%; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 13%; 
Term extension (5): Redefault: 20%. 

Monthly payment reduction: 60% or more;
Payment reduction (1): Redefault: 11%; 
Payment reduction (1): Loans: 7%;
Rate reduction (2): Redefault: 10%; 
Rate reduction (2): Loans: 7%;
Balance reduction (3): Redefault: 11%[A]; 
Balance reduction (3): Loans: 38%;
Capitalization (4): Redefault: 8%; 
Capitalization (4): Loans: 4%; 
Capitalization (4): [Empty]; 
Term extension (5): Redefault: 14%; 
Term extension (5): Redefault: 9%. 

Monthly payment reduction: Observations;
Payment reduction (1): Redefault: 49,526; 
Rate reduction (2): Redefault: 47,677;
Capitalization (4): Redefault: 39,727; 
Term extension (5): Redefault: 16,694. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[End of table] 

Table 32: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification) for Subprime Loans 
(Excluding Government-Guaranteed and Enterprise Loans), by 
Modification Action and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault;
Payment reduction (1): Redefault: 17%; 
Payment reduction (1): Loans: [Empty];
Rate reduction (2): Redefault: 17%; 
Rate reduction (2): Loans: [Empty];
Capitalization (3): Redefault: 16%; 
Capitalization (3): Loans: [Empty];
Term extension (4): Redefault: 19%; 
Term extension (4): Loans: [Empty]. 

Monthly payment reduction: Less than 10%;
Payment reduction (1): Redefault: 18%; 
Payment reduction (1): Loans: 17%;
Rate reduction (2): Redefault: 17%; 
Rate reduction (2): Loans: 13%;
Capitalization (3): Redefault: 23%; 
Capitalization (3): Loans: 20%;
Term extension (4): Redefault: 18%; 
Term extension (4): Loans: 20%. 

Monthly payment reduction: 10% to 19%;
Payment reduction (1): Redefault: 20%[A]; 
Payment reduction (1): Loans: 22%;
Rate reduction (2): Redefault: 19%[A]; 
Rate reduction (2): Loans: 22%;
Capitalization (3): Redefault: 20%[A]; 
Capitalization (3): Loans: 18%;
Term extension (4): Redefault: 33%; 
Term extension (4): Loans: 14%. 

Monthly payment reduction: 20% to 29%;
Payment reduction (1): Redefault: 18%[A]; 
Payment reduction (1): Loans: 22%;
Rate reduction (2): Redefault: 17%[A]; 
Rate reduction (2): Loans: 23%;
Capitalization (3): Redefault: 16%; 
Capitalization (3): Loans: 18%;
Term extension (4): Redefault: 19%[A]; 
Term extension (4): Loans: 18%. 

Monthly payment reduction: 30% to 39%;
Payment reduction (1): Redefault: 17%[A]; 
Payment reduction (1): Loans: 14%;
Rate reduction (2): Redefault: 16%[A]; 
Rate reduction (2): Loans: 14%;
Capitalization (3): Redefault: 14%; 
Capitalization (3): Loans: 15%;
Term extension (4): Redefault: 18%[A]; 
Term extension (4): Loans: 16%. 

Monthly payment reduction: 40% to 49%;
Payment reduction (1): Redefault: 16%[A]; 
Payment reduction (1): Loans: 11%;
Rate reduction (2): Redefault: 16%[A]; 
Rate reduction (2): Loans: 11%;
Capitalization (3): Redefault: 12%; 
Capitalization (3): Loans: 12%;
Term extension (4): Redefault: 14%[A]; 
Term extension (4): Loans: 17%. 

Monthly payment reduction: 50% to 59%;
Payment reduction (1): Redefault: 16%[A]; 
Payment reduction (1): Loans: 7%;
Rate reduction (2): Redefault: 16%[A]; 
Rate reduction (2): Loans: 8%;
Capitalization (3): Redefault: 11%; 
Capitalization (3): Loans: 9%;
Term extension (4): Redefault: 15%[A]; 
Term extension (4): Loans: 12%. 

Monthly payment reduction: 60% or more;
Payment reduction (1): Redefault: 14%[A]; 
Payment reduction (1): Loans: 7%;
Rate reduction (2): Redefault: 14%[A]; 
Rate reduction (2): Loans: 8%;
Capitalization (3): Redefault: 8%; 
Capitalization (3): Loans: 9%;
Term extension (4): Redefault: 4%[A]; 
Term extension (4): Loans: 3%. 

Monthly payment reduction: Observations;
Payment reduction (1): Redefault: 11470;
Rate reduction (2): Redefault: 10921;
Capitalization (3): Redefault: [Empty]; 
Capitalization (3): Loans: 9166; 
Term extension (4): Redefault: [Empty]; 
Term extension (4): Loans: 3725. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Note: Estimates are not available for balance reduction due to 
insufficient data. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[End of table] 

Table 33: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 months of modification) for Enterprise Prime 
Loans, by Modification Action and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault;
Payment reduction: (1): Redefault: 15%; 
Payment reduction: Loans: [Empty];
Rate reduction (2): Redefault: 15%; 
Rate reduction (2): Loans: [Empty];
Balance reduction: (3): Redefault: 9%; 
Balance reduction: Loans: [Empty];
Capitalization (4): Redefault: 16%; 
Capitalization (4): Loans: [Empty];
Term extension (5): Redefault: 18%; 
Term extension (5): Loans: [Empty]. 

Monthly payment reduction: Less than 10%;
Payment reduction: (1): Redefault: 20%; 
Payment reduction: Loans: 11%;
Rate reduction (2): Redefault: 20%; 
Rate reduction (2): Loans: 9%;
Balance reduction: (3): Redefault: 0%; 
Balance reduction: Loans: 1%;
Capitalization (4): Redefault: 22%; 
Capitalization (4): Loans: 13%;
Term extension (5): Redefault: 29%; 
Term extension (5): Loans: 7%. 

Monthly payment reduction: 10% to 19%;
Payment reduction: (1): Redefault: 17%; 
Payment reduction: Loans: 15%;
Rate reduction (2): Redefault: 17%; 
Rate reduction (2): Loans: 15%;
Balance reduction: (3): Redefault: 16%[A]; 
Balance reduction: Loans: 2%;
Capitalization (4): Redefault: 18%; 
Capitalization (4): Loans: 17%;
Term extension (5): Redefault: 23%; 
Term extension (5): Loans: 9%. 

Monthly payment reduction: 20% to 29%;
Payment reduction: (1): Redefault: 16%; 
Payment reduction: Loans: 20%;
Rate reduction (2): Redefault: 16%; 
Rate reduction (2): Loans: 21%;
Balance reduction: (3): Redefault: 12%[A]; 
Balance reduction: Loans: 2%;
Capitalization (4): Redefault: 17%; 
Capitalization (4): Loans: 22%;
Term extension (5): Redefault: 23%; 
Term extension (5): Loans: 19%. 

Monthly payment reduction: 30% to 39%;
Payment reduction: (1): Redefault: 14%; 
Payment reduction: Loans: 18%;
Rate reduction (2): Redefault: 14%; 
Rate reduction (2): Loans: 18%;
Balance reduction: (3): Redefault: 7%[A]; 
Balance reduction: Loans: 3%;
Capitalization (4): Redefault: 15%; 
Capitalization (4): Loans: 20%;
Term extension (5): Redefault: 16%; 
Term extension (5): Loans: 11%. 

Monthly payment reduction: 40% to 49%;
Payment reduction: (1): Redefault: 12%; 
Payment reduction: Loans: 16%;
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: 17%;
Balance reduction: (3): Redefault: 6%[A]; 
Balance reduction: Loans: 11%;
Capitalization (4): Redefault: 12%; 
Capitalization (4): Loans: 17%;
Term extension (5): Redefault: 14%; 
Term extension (5): Loans: 18%. 

Monthly payment reduction: 50% to 59%;
Payment reduction: (1): Redefault: 13%; 
Payment reduction: Loans: 11%;
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: 12%;
Balance reduction: (3): Redefault: 8%[A]; 
Balance reduction: Loans: 39%;
Capitalization (4): Redefault: 13%; 
Capitalization (4): Loans: 8%;
Term extension (5): Redefault: 14%; 
Term extension (5): Loans: 24%. 

Monthly payment reduction: 60% or more;
Payment reduction: (1): Redefault: 12%; 
Payment reduction: Loans: 8%;
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: 8%;
Balance reduction: (3): Redefault: 11%[A]; 
Balance reduction: Loans: 43%;
Capitalization (4): Redefault: 8%; 
Capitalization (4): Loans: 4%;
Term extension (5): Redefault: 15%; 
Term extension (5): Loans: 11%. 

Monthly payment reduction: Observations;
Payment reduction: (1): Redefault: 32950;
Rate reduction (2): Redefault: 31811;
Balance reduction: (3): Redefault: 3078;
Capitalization (4): Redefault: 27463;
Term extension (5): Redefault: 11426. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[End of table] 

Table 34: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification) for Non-Enterprise Prime 
Loans (Excluding Government-Guaranteed Loans), by Modification Action 
and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault;
Payment reduction: (1): Redefault: 12%; 
Payment reduction: Loans: [Empty];
Rate reduction (2): Redefault: 12%; 
Rate reduction (2): Loans: [Empty];
Balance reduction (3): Redefault: 11%; 
Balance reduction (3): Loans: [Empty];
Capitalization (4): Redefault: 13%; 
Capitalization (4): Loans: [Empty];
Term extension (5): Redefault: 14%; 
Term extension (5): Loans: [Empty]. 

Monthly payment reduction: Less than 10%;
Payment reduction: (1): Redefault: 17%; 
Payment reduction: Loans: 13%;
Rate reduction (2): Redefault: 15%; 
Rate reduction (2): Loans: 10%;
Balance reduction (3): Redefault: 14%; 
Balance reduction (3): Loans: 7%;
Capitalization (4): Redefault: 20%; 
Capitalization (4): Loans: 13%;
Term extension (5): Redefault: 31%; 
Term extension (5): Loans: 9%. 

Monthly payment reduction: 10% to 19%;
Payment reduction: (1): Redefault: 13%; 
Payment reduction: Loans: 19%;
Rate reduction (2): Redefault: 13%; 
Rate reduction (2): Loans: 19%;
Balance reduction (3): Redefault: 16%[A]; 
Balance reduction (3): Loans: 4%;
Capitalization (4): Redefault: 14%; 
Capitalization (4): Loans: 17%;
Term extension (5): Redefault: 18%; 
Term extension (5): Loans: 12%. 

Monthly payment reduction: 20% to 29%;
Payment reduction: (1): Redefault: 15%; 
Payment reduction: Loans: 24%;
Rate reduction (2): Redefault: 14%[A]; 
Rate reduction (2): Loans: 25%;
Balance reduction (3): Redefault: 0%[A]; 
Balance reduction (3): Loans: 4%;
Capitalization (4): Redefault: 15%; 
Capitalization (4): Loans: 22%;
Term extension (5): Redefault: 20%; 
Term extension (5): Loans: 24%. 

Monthly payment reduction: 30% to 39%;
Payment reduction: (1): Redefault: 11%; 
Payment reduction: Loans: 17%;
Rate reduction (2): Redefault: 10%; 
Rate reduction (2): Loans: 18%;
Balance reduction (3): Redefault: 0%[A]; 
Balance reduction (3): Loans: 8%;
Capitalization (4): Redefault: 12%; 
Capitalization (4): Loans: 20%;
Term extension (5): Redefault: 10%; 
Term extension (5): Loans: 21%. 

Monthly payment reduction: 40% to 49%;
Payment reduction: (1): Redefault: 8%; 
Payment reduction: Loans: 14%;
Rate reduction (2): Redefault: 7%; 
Rate reduction (2): Loans: 14%;
Balance reduction (3): Redefault: 17%[A]; 
Balance reduction (3): Loans: 20%;
Capitalization (4): Redefault: 8%; 
Capitalization (4): Loans: 15%;
Term extension (5): Redefault: 6%; 
Term extension (5): Loans: 20%. 

Monthly payment reduction: 50% to 59%;
Payment reduction: (1): Redefault: 9%; 
Payment reduction: Loans: 8%;
Rate reduction (2): Redefault: 8%; 
Rate reduction (2): Loans: 9%;
Balance reduction (3): Redefault: 19%[A]; 
Balance reduction (3): Loans: 35%;
Capitalization (4): Redefault: 9%; 
Capitalization (4): Loans: 7%;
Term extension (5): Redefault: 7%; 
Term extension (5): Loans: 10%. 

Monthly payment reduction: 60% or more;
Payment reduction: (1): Redefault: 10%; 
Payment reduction: Loans: 5%;
Rate reduction (2): Redefault: 9%; 
Rate reduction (2): Loans: 5%;
Balance reduction (3): Redefault: 12%[A]; 
Balance reduction (3): Loans: 23%;
Capitalization (4): Redefault: 9%; 
Capitalization (4): Loans: 4%;
Term extension (5): Redefault: 9%; 
Term extension (5): Loans: 4%. 

Monthly payment reduction: Observations;
Payment reduction: (1): Redefault: 14448;
Rate reduction (2): Redefault: 13928;
Balance reduction (3): Redefault: 568;
Capitalization (4): Redefault: 10900;
Term extension (5): Redefault: 4470. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[End of table] 

Table 35: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification) for FHA Loans, by 
Modification Action and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault; 
Payment reduction: (1): Redefault: 22%; 
Payment reduction: Loans: [Empty]; 
Rate reduction (2): Redefault: 22%; 
Rate reduction (2): Loans: [Empty]; 
Capitalization (3): Redefault: 21%; 
Capitalization (3): Loans: [Empty]; 
Term extension (4): Redefault: 19%; 
Term extension (4): Loans: [Empty]. 

Monthly payment reduction: Less than 10%; 
Payment reduction: (1): Redefault: 26%; 
Payment reduction: Loans: 45%; 
Rate reduction (2): Redefault: 26%; 
Rate reduction (2): Loans: 44%; 
Capitalization (3): Redefault: 26%; 
Capitalization (3): Loans: 45%; 
Term extension (4): Redefault: 27%; 
Term extension (4): Loans: 31%. 

Monthly payment reduction: 10% to 19%; 
Payment reduction: (1): Redefault: 20%; 
Payment reduction: Loans: 40%; 
Rate reduction (2): Redefault: 19%; 
Rate reduction (2): Loans: 41%; 
Capitalization (3): Redefault: 19%[A]; 
Capitalization (3): Loans: 40%; 
Term extension (4): Redefault: 18%; 
Term extension (4): Loans: 48%. 

Monthly payment reduction: 20% to 29%; 
Payment reduction: (1): Redefault: 16%; 
Payment reduction: Loans: 11%; 
Rate reduction (2): Redefault: 16%; 
Rate reduction (2): Loans: 11%; 
Capitalization (3): Redefault: 15%; 
Capitalization (3): Loans: 10%; 
Term extension (4): Redefault: 15%; 
Term extension (4): Loans: 15%. 

Monthly payment reduction: 30% to 39%; 
Payment reduction: (1): Redefault: 11%; 
Payment reduction: Loans: 3%; 
Rate reduction (2): Redefault: 11%; 
Rate reduction (2): Loans: 3%; 
Capitalization (3): Redefault: 12%; 
Capitalization (3): Loans: 3%; 
Term extension (4): Redefault: 7%; 
Term extension (4): Loans: 4%. 

Monthly payment reduction: 40% to 49%; 
Payment reduction: (1): Redefault: 4%; 
Payment reduction: Loans: 1%; 
Rate reduction (2): Redefault: 5%; 
Rate reduction (2): Loans: 1%; 
Capitalization (3): Redefault: 7%; 
Capitalization (3): Loans: 1%; 
Term extension (4): Redefault: 5%; 
Term extension (4): Loans: 1%. 

Monthly payment reduction: 50% to 59%; 
Payment reduction: (1): Redefault: 0%; 
Payment reduction: Loans: 0%[B]; 
Rate reduction (2): Redefault: 0%; 
Rate reduction (2): Loans: 0%[B]; 
Capitalization (3): Redefault: 0%; 
Capitalization (3): Loans: 0%[B]; 
Term extension (4): Redefault: 0%; 
Term extension (4): Loans: 0%[B]. 

Monthly payment reduction: 60% or more; 
Payment reduction: (1): Redefault: 12%[A]; 
Payment reduction: Loans: 0%[B]; 
Rate reduction (2): Redefault: 13%[A]; 
Rate reduction (2): Loans: 0%[B]; 
Capitalization (3): Redefault: 12%[A]; 
Capitalization (3): Loans: 0%[B]; 
Term extension (4): Redefault: NA; 
Term extension (4): Loans: NA. 

Monthly payment reduction: Observations; 
Payment reduction: (1): Redefault: 9939; 
Rate reduction (2): Redefault: 9728; 
Capitalization (3): Redefault: 9770; 
Term extension (4): Redefault: 5946. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Notes: 

Estimates are not available for balance reduction due to insufficient 
data. 

NA = not available. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[B] The values are less than 1 percent. 

[End of table] 

Table 36: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification) for VA Loans, by 
Modification Action and Size of Payment Reduction: 

Monthly payment reduction: Baseline redefault; 
Payment reduction (1): Redefault: 15%; 
Payment reduction (1): Loans: [Empty]; 
Rate reduction (2): Redefault: 15%; 
Rate reduction (2): Loans: [Empty]; 
Capitalization (3): Redefault: 15%; 
Capitalization (3): Loans: [Empty]. 

Monthly payment reduction: Less than 10%; 
Payment reduction (1): Redefault: 15%; 
Payment reduction (1): Loans: 39%; 
Rate reduction (2): Redefault: 13%; 
Rate reduction (2): Loans: 38%; 
Capitalization (3): Redefault: 14%; 
Capitalization (3): Loans: 40%. 

Monthly payment reduction: 10% to 19%; 
Payment reduction (1): Redefault: 18%[A]; 
Payment reduction (1): Loans: 42%; 
Rate reduction (2): Redefault: 19%[A]; 
Rate reduction (2): Loans: 43%; 
Capitalization (3): Redefault: 20%[A]; 
Capitalization (3): Loans: 42%. 

Monthly payment reduction: 20% to 29%; 
Payment reduction (1): Redefault: 11%[A]; 
Payment reduction (1): Loans: 14%; 
Rate reduction (2): Redefault: 9%[A]; 
Rate reduction (2): Loans: 14%; 
Capitalization (3): Redefault: 6%[A]; 
Capitalization (3): Loans: 14%. 

Monthly payment reduction: 30% to 39%; 
Payment reduction (1): Redefault: 10%[A]; 
Payment reduction (1): Loans: 3%; 
Rate reduction (2): Redefault: 27%[A]; 
Rate reduction (2): Loans: 3%; 
Capitalization (3): Redefault: 16%[A]; 
Capitalization (3): Loans: 3%. 

Monthly payment reduction: 40% to 49%; 
Payment reduction (1): Redefault: 0%; 
Payment reduction (1): Loans: 1%; 
Rate reduction (2): Redefault: 0%; 
Rate reduction (2): Loans: 1%; 
Capitalization (3): Redefault: 0%; 
Capitalization (3): Loans: 1%. 

Monthly payment reduction: 50% to 59%; 
Payment reduction (1): Redefault: 21%[A]; 
Payment reduction (1): Loans: 0%[B]; 
Rate reduction (2): Redefault: 0%[A]; 
Rate reduction (2): Loans: 0%b; 
Capitalization (3): Redefault: NA; 
Capitalization (3): Loans: NA. 

Monthly payment reduction: 60% or more; 
Payment reduction (1): Redefault: 19%[A]; 
Payment reduction (1): Loans: 0%[B]; 
Rate reduction (2): Redefault: 2%[A]; 
Rate reduction (2): Loans: 0%b; 
Capitalization (3): Redefault: 0%[A]; 
Capitalization (3): Loans: 0%[B]. 

Monthly payment reduction: Observations; 
Payment reduction (1): Redefault: 921; 
Payment reduction (1): Loans: [Empty]; 
Rate reduction (2): Redefault: 900; 
Rate reduction (2): Loans: [Empty]; 
Capitalization (3): Redefault: 894; 
Capitalization (3): Loans: [Empty]. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

Notes: 

Estimates are not available for balance reduction and term extension 
due to insufficient data. 

NA = not available. 

[A] The estimate is not statistically significant at the 10 percent 
level. 

[B] The values are less than 1 percent. 

[End of table] 

Figure 25: Predicted Redefault Rates and Distribution of Payment 
Reductions (within 6 Months of Modification), by Loan Type and Size of 
Payment Reduction: 

[Refer to PDF for image: 5 combination line and vertical bar graphs] 

Fannie Mae and Freddie Mac prime loans (Observations: 32,950): 
Baseline default rate: 15%. 

Monthly payment reduction: 
Less than 10%: 11%; 
Predicted redefault rate: 20%; 

10% to 19%: 15%; 
Predicted redefault rate: 17%; 

20% to 29%: 20%; 
Predicted redefault rate: 16%; 

30% to 39%: 18%; 
Predicted redefault rate: 14%; 

40% to 49%: 16%; 
Predicted redefault rate: 12%; 

50% to 59%: 11%; 
Predicted redefault rate: 13%; 

60% or more: 8%; 
Predicted redefault rate: 12%. 

Nonenterprise prime loans (exclude government-guaranteed loans) 
(Observations: 4,448): 
Baseline default rate: 13%. 

Monthly payment reduction: 
Less than 10%: 13%; 
Predicted redefault rate: 17%; 

10% to 19%: 19%; 
Predicted redefault rate: 13%; 

20% to 29%: 24%; 
Predicted redefault rate: 15%; 

30% to 39%: 17%; 
Predicted redefault rate: 11%; 

40% to 49%: 14%; 
Predicted redefault rate: 8%; 

50% to 59%: 8%; 
Predicted redefault rate: 9%; 

60% or more: 5%; 
Predicted redefault rate: 10%. 

Subprime loans (exclude government-guaranteed loans) (Observations: 
11,470): 
Baseline default rate: 13%. 

Monthly payment reduction: 
Less than 10%: 17%; 
Predicted redefault rate: 18%; 

10% to 19%: 22%; 
Predicted redefault rate: 20%; 

20% to 29%: 22%; 
Predicted redefault rate: 18%; 

30% to 39%: 14%; 
Predicted redefault rate (not significant at the 10% level): 17%; 

40% to 49%: 11%; 
Predicted redefault rate (not significant at the 10% level): 16%; 

50% to 59%: 7%; 
Predicted redefault rate (not significant at the 10% level): 16%; 

60% or more: 7%; 
Predicted redefault rate (not significant at the 10% level): 14%. 

FHA loans (Observations: 9,939): 
Baseline default rate: 22%. 

Monthly payment reduction: 
Less than 10%: 45%; 
Predicted redefault rate: 26%; 

10% to 19%: 40%; 
Predicted redefault rate: 20%; 

20% to 29%: 11%; 
Predicted redefault rate: 16%; 

30% to 39%: 3%; 
Predicted redefault rate: 11%; 

40% to 49%: 1%; 
Predicted redefault rate: 4%; 

50% to 59%: 0%; 
Predicted redefault rate: 0%; 

60% or more: 0%; 
Predicted redefault rate: 12%. 

VA loans (Observations: 921): 
Baseline default rate: 15%. 

Monthly payment reduction: 
Less than 10%: 39%; 
Predicted redefault rate: 15%; 

10% to 19%: 42%; 
Predicted redefault rate: 18%; 

20% to 29%: 14%; 
Predicted redefault rate (not significant at the 10% level): 11%; 

30% to 39%: 3%; 
Predicted redefault rate: 10%; 

40% to 49%: 1%; 
Predicted redefault rate: 0%; 

50% to 59%: 0%; 
Predicted redefault rate (not significant at the 10% level): 21%; 

60% or more: 0%; 
Predicted redefault rate (not significant at the 10% level): 19%. 

Source: GAO analysis of data from CoreLogic and its Home Price Index 
and the Bureau of Labor Statistics. 

[End of figure] 

[End of section] 

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Behavior of Homeowners and Servicers, Unpublished manuscript, 
http://ssrn.com/abstract=1807135. 2011. 

OCC-OTS (Office of the Comptroller of the Currency/Office of Thrift 
Supervision). OCC and OTS Mortgage Metrics Report (Disclosure of 
National Bank and Federal Thrift Mortgage Loan Data: Third Quarter 
2010 (Washington, D.C.: December 2010). 

Piskorski, T., A. Seru, and V. Vig. "Securitization and Distressed 
Loan Renegotiation: Evidence from the Subprime Mortgage Crisis." 
University of Chicago, Booth School of Business, Research Paper no. 09-
02. 2009. 

Voicu, I., V. Been, M. Weselcouch and A. Tschirart. "Performance of 
HAMP Versus Non-HAMP Loan Modifications - Evidence from New York 
City," Unpublished manuscript, OCC, Washington, DC. 2011. 

[End of section] 

Appendix VI: Comments from the Department of Treasury: 

Department of The Treasury: 
Assistant Secretary: 
Washington, D.C. 20220 

June 19, 2012: 

Mathew J. Scire: 
Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Scire: 

The Department of the Treasury (Treasury) welcomes the opportunity to 
comment on your draft report regarding foreclosure mitigation titled 
"Foreclosure Mitigation, Agencies Could Improve Effectiveness of 
Federal Efforts with Additional Data Collection and Analysis" (Draft 
Report). 

GAO's Draft Report provides constructive insight to the current 
condition of the U.S. housing market and foreclosure mitigation 
efforts by federal and nonfederal entities. Treasury appreciates GAO's 
acknowledgment of the leading role that Treasury's Making Home
Affordable (MBA) program has played in helping to repair the housing 
market, including actively engaging with other federal and nonfederal 
agencies. As you note in the report, the Home Affordable Modification 
Program (HAMP) has helped over one million struggling families 
permanently modify their mortgage loans and remain in their homes, and 
has set standards that have helped change the mortgage servicing 
industry. The Draft Report also recognizes that servicers have 
modified nearly one million additional loans under programs 
administered by the Departments of Agriculture and Veterans Affairs, 
Federal Housing Administration (FHA), and Fannie Mae and Freddie Mac. 
Between 2009 and 2011, servicers modified a total of about four 
million mortgages under federal and proprietary programs. 

HAMP has established important benchmarks for the mortgage industry 
that have greatly improved the level of assistance provided to 
homeowners. Data shows that HAMP offers some of the most sustainable 
modifications available to homeowners today, and since its launch has 
improved the affordability and sustainability of modification programs 
throughout the mortgage industry. 

The Draft Report recognizes that Treasury's programs have proven to be 
critical foreclosure prevention tools. However, Treasury realizes that 
the housing market remains fragile and there is still much work to be 
done. This is why we recently enhanced MHA by extending the deadline 
for the program to allow borrowers still in need of relief more time 
to take advantage of available opportunities and expanding eligibility 
requirements to reach a broader pool of distressed borrowers. These 
enhancements, along with additional expanded opportunities made 
available by the Obama Administration, will help the housing market 
recover faster from an unprecedented crisis. 

While the Draft Report notes that for as many borrowers who received a 
permanent HAMP modification (approximately 933,000 through December 
2011), just about as many homeowners have either been unable to 
receive a HAMP permanent modification or have had their trial or 
permanent loan modification canceled, we believe it is important to 
highlight that the vast majority of trial modifications canceled 
occurred before Treasury implemented guidance in June 2010 requiring 
servicers to obtain full income documentation prior to beginning a 
trial period plan. Since June 2010, 86 percent of trial modifications 
started have converted to permanent modifications. In addition, our 
survey data indicates that less than one-third (28 percent) of 
canceled HAMP trial modifications entered the foreclosure process, 
with 40 percent beginning an alternative modification or payment plan, 
and 9 percent obtaining a short sale or deed-in-lieu of foreclosure. 

The Draft Report also notes that with respect to the FHA Short 
Refinance Program, Treasury should update its participation estimates 
to reassess the terms of its letter of credit facility with FHA and 
consider seeking modifications to ensure that it meets Treasury's 
needs in a cost-effective manner. The FT IA has recently changed the 
FHA Short Refinance Program guidance to alter the amount that can be 
refinanced and this change may impact program participation. Treasury 
is currently evaluating the impact of this change and we will take 
your recommendation into consideration. 

Treasury values GAO's analysis of the condition of the housing market 
and efforts to mitigate foreclosures, and looks forward to continuing 
work with you and your team as we strive to address these difficult 
matters. 

Sincerely, 

Signed by: 

Timothy G. Massad: 
Assistant Secretary for Financial Stability: 

[End of section] 

Appendix VII: Comments from the Department of Housing and Urban 
Development: 

U.S. Department Of Housing and Urban Development: 
Assistant Secretary for Housing--Federal Rousing Commissioner: 
Washington, DC 20410-8000: 

June 15, 2012: 

Mr. Mathew J. Scire, Director: 
Financial Markets and Community Investment: 
Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548-0001: 

Dear Mr. Scire: 

Thank you for the opportunity to comment on the draft GA0-12-269 
Report entitled, "Foreclosure Mitigation: Agencies Could Improve 
Effectiveness of Federal Efforts With Additional Data Collection and 
Analysis." This letter conveys HUD's response to the audit. Technical 
comments on this draft have already been sent to GAO. 

With regards to the recommendations found in the report, FHA's 
specific responses to each are below. But at the outset, it should be 
noted that FHA agrees with the GAO's recommendations and is either 
currently working toward the achievement of those recommendations, or 
has plans to do so in the very near future. 

Recommendation: 

To help ensure Treasury is making effective and efficient use of its 
resources, Treasury and FHA should update their estimates of 
participation in the FHA Short Refinance program given current 
participation rates and recent changes to the program. 

HUD Response: 

FHA agrees with the recommendations that relate to the Short 
Refinancing. However, the audit indicates that through December 2011, 
there were only 646 endorsed Short Refi loans (page 32). Since then as 
a result of changes HUD has made to the program, activity in this 
program has increased and in less than 6 months, the number of loans 
has more than doubled. FHA has endorsed 1303 loans as of June 1, 2012. 

Recommendation: 

To more fully understand the strength and risks posed by foreclosure 
mitigation actions and protect taxpayers from absorbing avoidable 
losses to the maximum extent possible, we recommend that FHA, VA and 
USDA conduct periodic analyses of the effectiveness and the long-term 
costs and benefits of their loss mitigation strategies and actions. 
These analyses should consider: 

(a) the redefault rates associated with each type of home retention 
action and, (b) the impact that loan and borrower characteristic have 
on the performance of different home retention actions. The agencies 
should use the results from these analyses to reevaluate their loss 
mitigation approach and provide additional guidance to servicers to 
effectively target foreclosure mitigation actions. If FHA, VA and USDA 
do not maintain data needed to consider this information, they should 
require services to provide it. 

HUD Response: 

FHA agrees with the recommendations pertaining to loss mitigation.
We appreciate the efforts of the GAO to review our progress and 
suggest future recommendations to strengthen our foreclosure 
mitigation process. 

Sincerely, 

Signed by: 

Carol J. Galante: 
Acting Assistant Secretary for Housing--Federal Housing Commissioner: 

Enclosure: 

[End of section] 

Appendix VIII: Comments from the Department of Veterans Affairs: 

Department of Veterans Affairs: 
Washington DC 20420: 

June 15, 2012: 

Mr. Mathew J. Scire: 
Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Scire: 

The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, "Foreclosure Mitigation: 
Agencies Could Improve Effectiveness of Federal Efforts with 
Additional Data Collection and Analysis" (GAO-12-296) and concurs with 
GAO's findings. 

The enclosure specifically addresses GAO's recommendation and provides 
an action plan. VA appreciates the opportunity to comment on your 
draft report. 

Sincerely, 

Signed by: 

John R. Gingrich: 
Chief of Staff: 

Enclosure: 

[End of letter] 

Enclosure: 

Department of Veterans Affairs (VA) Comments to Government 
Accountability Office (GAO) Draft Report: 

Foreclosure Mitigation: Agencies Could Improve Effectiveness of
Federal Efforts with Additional Data Collection and Analysis
(GA0-12-296): 

GAO Recommendation: To more fully understand the strengths and risks 
posed by foreclosure mitigation actions and protect taxpayers from 
absorbing avoidable losses to the maximum extent possible, we 
recommend that VA conduct periodic analyses of the effectiveness and 
the long-term costs and benefits of their loss mitigation strategies 
and actions. These analyses should consider (a) the redefault rates 
associated with each type of home retention action and (b) the impact 
that loan and borrower characteristics have on the performance of 
different home retention actions. The agencies should use the results 
from these analyses to reevaluate their loss mitigation approach and 
provide additional guidance to services to effectively target 
foreclosure mitigation actions. If VA does not maintain data needed to 
consider this information, they should require servicers to provide it. 

VA Response: Concur. Regarding recommendation (a), the Veterans Benefits
Administration (VBA) will collect and analyze data on redefault rates 
and determine how those results would be appropriately coordinated 
into the Home Loan program's loss mitigation approach, and into the 
guidance that the program provides to servicers in that regard. VBA 
will determine the level of effort and associated costs required to 
conduct such periodic analyses, and then baseline the schedule for the 
remainder of the work. VBA expects that the determination of the level 
of effort and costs will be completed by October 31, 2012. 

Regarding recommendation (b), VBA expects a higher and very 
significant level of effort would be required to design and implement 
the recommended analysis. VBA also notes that the end product of such 
analysis may likely be data, which would suggest or support program 
policy that would segment and negatively impact Veteran borrowers in a 
manner incongruous with VA's mission. An assessment of the correlation 
between borrower and loan characteristics and effective loss 
mitigation options may yield data which show, for example, that low 
income Vietnam Veterans in Michigan have a markedly lower success rate 
for completion of repayment plans, or a markedly higher rate of 
frequent, repeated loan modifications. From a purely fiscal 
perspective, such data would suggest that the policy option would be 
to discontinue offering repayment plans and loan modification options 
to Vietnam Veterans in Michigan, and instead, push such Veterans into 
short-sale or deed-in-lieu options from the onset of default and loss 
mitigation intervention. This is problematic for VA. If lenders knew 
that from the onset, VA's policy for loss mitigation was to encourage 
short-sales and deeds-in-lieu for a segment of borrowers (Vietnam 
Veterans in Michigan), those lenders would create automatic credit-
overlays in their loan underwriting process. This would penalize a 
segment of the Veteran population, merely for their period of service 
and choice of state residence. This would be antithetical to VA's 
mission to serve all Veterans equally, and to ensure that all Veterans 
have the ability to obtain a home using their earned home loan 
guaranty benefit, and for them to retain that home during times of 
financial hardship. Additionally, as VA administers one of the only 
non-downpayment loan programs in the marketplace, any additional 
credit overlays would unduly restrict Veterans' access to use of their 
earned benefit. 

As such, the Home Loan program will first conduct a formal assessment 
of the parameter and scope of analysis, as well as the resources 
needed to undertake an analysis of loan and borrower characteristics, 
and the impact those elements may have on loss mitigation options. VBA 
expects that the analysis of scope, parameters, resources and 
potential benefit will be completed by December 31, 2012. 

[End of section] 

Appendix IX: Comments from the Federal Housing Finance Agency: 

Federal Housing Finance Agency: 
Constitution Center: 
400 7th Street, SW: 
Washington, DC 20021: 

June 15, 2012: 

Mathew J. Scire: 
Director: 
Financial Markets and Community Investment: 
Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Scire: 

Thank you for the opportunity to comment on the Government 
Accountability Office (GAO) draft study, Foreclosure Mitigation: 
Agencies Could Improve Effectiveness of Federal Efforts
with Additional Data Collection and Analysis. Having also devoted 
substantial time and resources to studying, developing, and improving 
a range of approaches to addressing the mortgage crisis, the Federal I 
lousing Finance Agency (FHFA) appreciates GAO's extensive work to 
understand the complexity and challenges. FHFA generally agrees with 
GAO's findings and its recommendation for FHFA. As GAO suggests, FHFA 
is moving expeditiously to complete its analysis and make a final 
decision about Enterprise adoption of Principal Reduction
Alternative (PRA) modifications under Treasury's Home Affordable 
Modification Program (HAMP). 

That said, FHFA believes it important that GAO clarify that HAMP PRA 
would not expand the numbers of borrowers who arc eligible to obtain 
modifications under IIAMP programs. The eligibility requirements for 
both the original HAMP modifications and HAMP PRA are the same.
HAMP PRA would change modified loan terms, but not the required 
monthly payments, nor program effectiveness from the standpoint of 
numbers of eligible borrowers. 

FHFA intends to release its updated analysis of principal forgiveness 
in the near future. As GAO states, FIIFA will address many of the 
issues raised about earlier versions of that analysis. The analysis 
initially focused on simple comparisons of the relative costs of 
principal forgiveness and principal forbearance as modification 
approaches. In April 2012, FHFA provided new analysis that looked 
specifically at standard HAMP and HAMP PRA modifications. A standard 
HAMP modification provides for principal forbearance if rate 
reductions and term extensions are not sufficient to reduce a 
borrower's housing debt-to-income ratio (DTI) to 31 percent. HAMP PRA 
initially provides for principal forgiveness. which is potentially 
augmented with rate reductions, term extensions, and principal 
forbearance to achieve the same reduction to a 31 percent DTI. 

While GAO cites as FHFA's estimate that nearly 700,000 severely 
underwater borrowers could potentially benefit, FHFA believes the 
actual number of borrowers that would receive such modifications would 
be substantially lower. The 700,000 figure assumes a 100 percent take-
up rate, and a debt-to-income ratio above 31 percent as the only 
eligibility criterion. F! IFA believes that with the application of 
additional HAMP eligibility criteria and expected take-up rates, the 
number of borrowers would be approximately one-third of that figure. 

FHFA continues to work with the Enterprises to focus resources on the 
most effective approaches to helping borrowers remain in their homes, 
through: 

* improvements in the Home Affordable Refinance Program (HARP), to 
allow more borrowers who arc current on their mortgages to refinance 
at favorable rates and reduce their housing costs, 

* improvements in the requirements for servicers' handling of 
borrowers in the early stages of delinquency, to provide appropriate 
remedies on a timely basis, and, 

* use of standardized Enterprise proprietary modifications to provide 
alternatives for borrowers who don't qualify for HAMP. 

Additionally, FHFA is working to expedite short sales and deeds-in-
lieu programs for borrowers where home retention is not a viable 
option. 

The table that illustrates the various types of modifications provided 
since the inception of HAMP does not distinguish between Enterprise 
and non-Enterprise HAMP modifications. As a result, the graphic 
suggests that the only modifications supported by the Enterprises are 
proprietary modifications. In fact. more than half of HAMP loan 
modifications are on Enterprise loans. Collectively, Enterprise HAMP 
and Enterprise proprietary modifications represent the majority of 
modifications performed today. The distinction between the two types 
of IIAMP modifications is simply that the Enterprises pay HAMP program 
incentives to servicers and borrowers for their HAMP modifications, 
while the Treasury pays them to the non-Enterprise investors. 

FHFA also wishes to highlight the importance of the recently aligned 
Enterprise proprietary modification programs. The proprietary 
modifications primarily target payment reductions for borrowers who 
have not qualified for trial or permanent HAMP modifications, The 
proprietary modifications are designed to assist those borrowers who 
cannot qualify for or take advantage of HAMP, including issues of 
documentation and debt-to-income ratios. Recognizing the value of
Enterprise proprietary modifications, Treasury has announced a similar 
alternative modification program for non-Enterprise loans, known as 
HAMP Tier 2. 

FHFA agrees that the extent of payment reduction for the borrower is 
the most important factor affecting the success of loan modifications. 
lowering the probability of default on the modified loan. As GAO 
recognizes, while the effectiveness of payment reductions--the 
objective of standard IIAMP modifications--is clear, the specific 
effectiveness of principal forgiveness is uncertain. 

FHFA's April analysis considered the impact of Treasury payments to 
subsidize the cost of principal forgiveness, previously available only 
to investors other than the Enterprises, In this analysis, to be 
supplemented by information FHFA will soon release, Treasury subsidy 
payments offset the Enterprise cost of principal forgiveness, but 
provide negligible savings, at best, from the standpoint of the 
federal government. since Enterprise losses reflect a potential draw 
on the Treasury, and Treasury payments are equivalent. 

In its forthcoming release, FHFA will also discuss further the expense 
and risks of, and time required for, implementation of a modification 
program involving principal forgiveness. A model-based economic 
analysis cannot address these crucial considerations.
Recognizing the GAO's focus on principal forgiveness, FHFA notes that 
GAO does not raise the issue in connection with FHA, VA, and USDA 
programs. GAO may wish to explain the different emphasis for the 
Enterprises, or provide additional discussion with respect to the 
other programs. 

Again, thank you for the opportunity to comment on this study. Please 
contact me if you have any additional questions. 

Sincerely, 
Signed by: 

Meg Burns: 
Senior Associate Director: 
Office of Housing and Regulatory Policy: 

[End of section] 

Appendix X: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mathew J. Scirè, (202) 512-8678, or sciremj@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Harry Medina, Assistant 
Director; Anne Akin; Serena Agoro-Menyang; Don Brown; Steve Brown; 
Tania Calhoun; Emily Chalmers; DuEwa Kamara; John Karikari, Patricia 
MacWilliams; John McGrail; Marc Molino; Christine Ramos; Beverly Ross; 
Jessica Sandler; Andrew Stavisky; and James Vitarello made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No 110-343, 122 Stat. 3765 (2008), codified at 12 U.S.C §§ 
5201 et seq. EESA required the Federal Housing Finance Agency, the 
Federal Deposit Insurance Corporation (FDIC), and the Board of 
Governors of the Federal Reserve System and Federal Reserve Banks 
(Federal Reserve System) to implement a plan to maximize assistance to 
homeowners--for example, by reducing interest rates and principal on 
residential mortgages or mortgage-backed securities owned or managed 
by these institutions. EESA originally authorized Treasury to purchase 
or guarantee up to $700 billion in troubled assets. The Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 
111-203, 124 Stat. 1376 (2010), (1) reduced Treasury's authority to 
purchase or insure troubled assets to a maximum of $475 billion and 
(2) prohibited Treasury, under EESA, from incurring any additional 
obligations for a program or initiative unless the program or 
initiative had already been initiated prior to June 25, 2010. 

[2] Section 116 of EESA, 122 Stat. at 3783 (codified at 12 U.S.C. § 
5226). 

[3] See, for example, GAO, Troubled Asset Relief Program: As Treasury 
Continues to Exit Programs, Opportunities to Enhance Communication on 
Costs Exist, [hyperlink, http://www.gao.gov/products/GAO-12-229] 
(Washington, D.C.: Jan. 9, 2012); Troubled Asset Relief Program: 
Treasury Continues to Face Implementation Challenges and Data 
Weaknesses in Its Making Home Affordable Program, [hyperlink, 
http://www.gao.gov/products/GAO-11-288] (Washington, D.C.: Mar. 17, 
2011); and Troubled Asset Relief Program: Status of Programs and 
Implementation of GAO Recommendations, [hyperlink, 
http://www.gao.gov/products/GAO-11-74] (Washington, D.C.: Jan. 12, 
2011). 

[4] The December 2011 cutoff represented the most recent comprehensive 
data that the agencies and enterprises could collectively provide and 
for which we could complete our data processing and reliability steps 
within the time frame of our review. 

[5] CoreLogic is a private company that provides data, analytics, 
technology, and services related to the mortgage industry, among other 
things. 

[6] For example, see GAO, Mortgage Reform: Potential Impacts of 
Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage 
Market, [hyperlink, http://www.gao.gov/products/GAO-11-656] 
(Washington, D.C.: July 19, 2011). 

[7] The June 2011 data were the most recent CoreLogic data for which 
we could complete our data processing and reliability steps within the 
time frame of our review. 

[8] GAO, Information on Recent Default and Foreclosure Trends for Home 
Mortgages and Associated Economic and Market Developments, [hyperlink, 
http://www.gao.gov/products/GAO-08-78R] (Washington, D.C.: Oct. 16, 
2007). 

[9] Board of Governors of the Federal Reserve System, The U.S. Housing 
Market: Current Conditions and Policy Considerations (Washington, 
D.C.: Jan. 4, 2012:); Janet L. Yellen, "Housing Market Development and 
Their Effects on Low-and Moderate-Income Neighborhoods" (remarks 
delivered at 2011 Federal Reserve Bank of Cleveland Policy Summit, 
Cleveland, Ohio: June 9, 2011); The Joint Center for Housing Studies 
at Harvard University, The State of the Nation's Housing: 2010 
(Cambridge: M.A.: 2010); Before the U.S. House of Representatives 
Committee on Financial Services, Subcommittee on Insurance, Housing 
and Community Opportunity: Are There Government Barriers to the 
Housing Market Recovery?" 112th Cong. (2011) (statement of Julia 
Gordon, Center for Responsible Lending); and The Department of the 
Treasury and U.S. Department of Housing and Urban Development, 
Reforming America's Housing Finance Market: A Report to Congress 
(Washington, D.C.: Feb. 2011). 

[10] Fannie Mae was originally charted in 1938 under the National 
Housing Act, as amended. Congress established it as a shareholder-
owned corporation in 1968. Congress initially established Freddie Mac 
in 1970 as an entity within the Federal Home Loan Bank System and 
reestablished it as a shareholder-owned corporation in 1989. Fannie 
Mae and Freddie Mac purchase mortgages that meet specified 
underwriting criteria from approved lenders. Most of the mortgages are 
made to prime borrowers with strong credit histories. The enterprises 
bundle most of the mortgages they purchase into securities and 
guarantee the timely payment of principal and interest to investors in 
the securities. On September 6, 2008, the enterprises were placed 
under federal conservatorship out of concern that their deteriorating 
financial condition threatened the stability of financial markets. 
Treasury and the Federal Reserve System have provided substantial 
financial support to the enterprises so that they can continue to 
support mortgage financing during the foreclosure crisis. 

[11] GAO, Vacant Properties: Growing Number Increases Communities 
Costs and Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-12-34] (Washington, D.C.: Nov. 4, 
2011). 

[12] Principal forgiveness involves reducing the amount of principal 
the borrower owes on their mortgage without requiring repayment. In 
contrast, principal forbearance involves deferring the amount of the 
mortgage for the purposes of determining the borrower's monthly 
mortgage payment. While the borrower does not pay interest on the 
amount forborne, the borrower will be required to make up the 
difference at a later time, usually upon the sale or transfer of the 
home or payoff of the loan. 

[13] Generally, federal agency and enterprise efforts to mitigate 
foreclosures have focused on loan modifications. However, a 
significant portion of FHA's foreclosure mitigation efforts have 
focused on repayment plans and forbearance. Please see appendix II for 
a more detailed description about the type and volume of foreclosure 
mitigation efforts implemented by federal agencies and the enterprises. 

[14] In addition to the programs covered by this report, there are a 
number of additional federal, state, and private efforts to facilitate 
the loan workout process and provide nonfinancial assistance to 
borrowers such as foreclosure mitigation counseling, web-based tools 
to facilitate the submission of borrower documents to servicers, and 
third-party mediation. 

[15] These estimates are from a survey of HOPE NOW members, which HOPE 
NOW extrapolated to the entire first-lien industry. HOPE NOW reports 
data on HAMP modifications and "proprietary modifications." According 
to a HOPE NOW official, "proprietary" modifications in their survey 
include modifications completed under Fannie Mae and Freddie Mac 
programs, other federal efforts, as well as modifications completed on 
loans held in lenders' portfolios or in private label securities. 

[16] We analyzed a sample of loan-level data we obtained from 
CoreLogic to examine the volume, characteristics, and performance of 
loan modifications. The data included loans that were active sometime 
in the period from January 2007 through June 2011. CoreLogic's prime 
loans include conventional loans as well as loans insured or 
guaranteed by government entities, such as FHA and VA. Further, prime 
loans include loans servicers have identified as Alt-A loans. Although 
this data set did not contain direct information about the presence of 
modifications, we developed a set of algorithms to infer if the loan 
had been modified. We confirmed the accuracy of our algorithms by 
using our methodology to analyze data provided by OCC where the 
presence of a modification was known. For a detailed description of 
our approach, please see appendix III. 

[17] The affordability structure of HAMP follows the post-modification 
31 percent debt-to-income standard of a modification program developed 
by FDIC for dealing with troubled mortgages arising from its 
receivership of IndyMac Bank, which failed in 2008. See appendix II 
for additional information about this program. 

[18] Treasury initially allocated $50 billion in TARP funds for HAMP, 
which was subsequently reduced to a total of $45.6 billion for all 
programs under MHA (including HAMP) as well as the FHA Refinance for 
Borrowers in Negative Equity Positions and the Hardest Hit Fund. With 
the introduction of the additional housing programs, the TARP 
allocation to MHA was reduced to $29.9 billion, which covers HAMP (the 
standard first-lien modification program), the Principal Reduction 
Alternative, Home Price Decline Protection incentives, the Second Lien 
Modification Program, the Home Affordable Foreclosure Alternatives 
program, and other incentive programs. 

[19] Treasury has issued guidance for nonenterprise HAMP 
modifications, while Fannie Mae and Freddie Mac have issued their own 
guidance for their HAMP modifications, In addition, FHA, VA, and USDA 
each have their own separate HAMP-like modification programs for loans 
they insure or guarantee, which are described later in this report. 

[20] Costsharing between the investor and Treasury applies only to the 
nonenterprise HAMP program. Fannie Mae and Freddie Mac do not receive 
investor incentives from Treasury and bear the full costs of HAMP 
modifications they complete. 

[21] The HAMP net present value (NPV) model compares expected cash 
flows from a modified loan to the same loan with no modification, 
using certain assumptions. If the expected investor cash flow with a 
modification is greater than the expected cash flow without a 
modification, the loan servicer is required to modify the loan. 
According to Treasury, the NPV model increases mortgage investors' 
confidence that modifications under HAMP are in their best financial 
interests and helps ensure that borrowers are treated consistently 
under the program by providing an externally derived objective 
standard for all loan servicers to follow. 

[22] The standard modification waterfall for HAMP includes 
capitalizing past due amounts, reducing the interest rate down to a 
minimum of 2 percent, extending the mortgage term by up to 40 years 
from the date of modification, and principal forbearance. Servicers 
also have the option of providing principal forgiveness to 
nonenterprise loans. 

[23] For nonenterprise loans, imminent default under HAMP is defined 
by each servicer, which must have written standards for determining 
imminent default. Fannie Mae and Freddie Mac have provided servicers 
of Fannie Mae and Freddie Mac loans with an imminent default test. A 
servicer must evaluate the borrower's hardship as well as the 
condition of and circumstances affecting the property. In addition, 
the servicer must consider the borrower's financial condition, liquid 
assets, liabilities, monthly income, and monthly obligations. 

[24] The Congressional Budget Office (CBO) estimated that total 
outlays from TARP for housing programs would be $16 billion. See CBO, 
Report on the Troubled Asset Relief Program--March 2012 (Washington, 
D.C.: Mar. 28, 2012). 

[25] The most common causes for servicers not offering homeowners a 
HAMP trial modification include insufficient documentation, borrower 
ineligibility, or mortgage ineligibility. The 1.9 million figure is 
based on data reported by the 10 largest servicers. 

[26] Borrowers who do not make current trial period payments are 
considered to have failed the trial period. In addition, servicers had 
canceled 170,488 permanent modifications. A permanent modification is 
canceled when a borrower has missed three consecutive payments 
(redefaults). 

[27] The enterprises have not received incentive payments from 
Treasury for PRA or the other components of the Making Home Affordable 
program, including HAMP. In January 2012, Treasury announced that it 
would pay PRA incentives to the enterprises for HAMP PRA modifications 
of enterprise loans; however, as of June 2012, FHFA does not allow 
Fannie Mae and Freddie Mac to forgive principal as part of a HAMP 
modification. 

[28] These figures include nonenterprise and enterprise loans. As 
noted earlier, enterprise loans are not eligible to receive principal 
reduction. When excluding enterprise loans, as of December 2011, about 
11 percent of nonenterprise active permanent HAMP modifications had 
received reductions in their principal balances under PRA. 

[29] See appendix II for a more detailed description of the various 
foreclosure mitigation efforts offered by Treasury. 

[30] Prior to June 2011, Fannie Mae and Freddie Mac offered different 
modification solutions. For example, Fannie Mae's program employed 
principal forbearance at a higher rate than Freddie Mac's program. 
According to FHFA officials, these differences resulted in the 
variation in average payment reductions. 

[31] FHFA, which is the regulator and conservator, has direct 
supervisory authority over Fannie Mae's and Freddie Mac's activities. 

[32] Initially, the enterprises required the interest rate to be 
reduced to 5 percent. However, this rate is recalculated periodically 
based on market conditions. 

[33] See appendix II for a more detailed description of the various 
foreclosure mitigation efforts offered by the enterprises. 

[34] See appendix II for a more detailed description of the various 
foreclosure mitigation efforts offered by FHA, VA, and USDA. 

[35] USDA's traditional loan modification program does not offer term 
extensions. 

[36] As discussed later in this report, servicers can receive certain 
incentive payments from Treasury for loans modified under FHA and USDA 
programs that meet additional requirements outlined by Treasury. 

[37] FHA refers to the process of reimbursing a servicer for advancing 
funds to bring the mortgage current as a partial claim. As we describe 
later, servicers may use a partial claim by itself as another 
foreclosure mitigation action. Under FHA guidelines, servicers are to 
consider borrowers for a partial claim after considering them for a 
standard loan modification but before an FHA-HAMP modification. 

[38] VA issued revisions to the VA-HAMP guidelines in May 2010, which 
specified that servicers are not required to use Treasury's NPV model. 
Although VA uses "HAMP" in its program name, VA-HAMP is 
administratively independent of Treasury's HAMP and Treasury does not 
provide servicer incentives. 

[39] According to VA officials, servicers do not distinguish between 
standard modifications and VA-HAMP modifications in reporting to VA. 
As discussed later in this report, collecting data on specific types 
of foreclosure mitigation actions could help VA better manage its 
foreclosure mitigation efforts. 

[40] Loans that are reportable defaults at the time the modification 
is completed (VA HAMP modifications and normal modifications) are 
eligible for VA incentive payments. 

[41] Treasury's incentive program for FHA-HAMP modifications is called 
Treasury FHA-HAMP, while its incentive program for SLS modifications 
performed on mortgages guaranteed by the USDA Office of Rural 
Development (RD) is called RD-HAMP. Servicers receive the lesser of 
$1,000 or half of the reduction in the borrower's annualized monthly 
payment each year for 3 years for modifications that resulted in a 
monthly payment reduction of 6 percent or more, so long as the loan 
remains in good standing and has not been paid in full. Borrowers 
receive a similar pay-for-performance incentive, accruing the lesser 
of $83.33 or half of the reduction in monthly payments for each month 
a timely payment is made. Borrower incentives are applied to the 
outstanding principal balance at the end of each year, so long as the 
loan remains in good standing at that time and has not been paid in 
full. 

[42] GAO is currently examining Treasury's oversight of the Hardest 
Hit Fund, among other things, as part of its ongoing oversight of 
Treasury's implementation of TARP-funded programs. 

[43] To estimate the total number of permanent loan modifications 
through servicers' proprietary efforts, we subtracted the 
modifications completed under federal agencies and the enterprises (as 
reported by the federal agencies and the enterprises) from the total 
modifications estimated by HOPE NOW. Between January 2009 and December 
2011, HOPE NOW estimated there were about 4 million permanent 
modifications. The HOPE NOW estimates are from a survey of HOPE NOW 
members, which include approximately 37 million loans and which have 
been extrapolated to the entire first-lien industry. HOPE NOW reports 
data on HAMP modifications and "proprietary modifications." According 
to a HOPE NOW official, proprietary modifications in their survey 
include modifications completed through the enterprises, other federal 
efforts, as well as modifications completed on loans held in lenders' 
portfolios or in private label securities. 

[44] As noted previously, Treasury recently announced HAMP Tier 2, 
which does not require mortgage payments to exceed 31 percent of 
monthly income. 

[45] Fannie Mae and Freddie Mac completed more than 9 million 
additional refinances through other refinance programs. 

[46] This figure includes borrowers who refinanced into a mortgage 
with a shorter term and therefore increased their monthly payments. 
Freddie Mac did not report comparable data. 

[47] Lenders make representations and warranties as to certain facts 
and circumstances concerning themselves and the mortgage loans they 
are selling or delivering to Fannie Mae or Freddie Mac. 
Representations and warranties are not limited to matters of which the 
lender had knowledge, and therefore the action or inaction (including 
misrepresentation or fraud) of the borrower or a third party, as well 
as of the lender, will constitute the lender's breach of a selling 
warranty. 

[48] For loans refinanced under the FHA Short Refinance program, 
Treasury will pay a portion of claims on those loans in the event of a 
default after FHA has paid its portion of the claim. 

[49] In addition, Treasury pays incentives to holders of second liens 
to reduce principal or extinguish second liens entirely in order to 
facilitate refinancing into an FHA mortgage. 

[50] In March 2012, FHA announced that borrowers who were not current 
on their mortgages but who completed a 3-month trial period would be 
eligible for a refinance under the program. In addition, FHA extended 
the program through December 2014. 

[51] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: Nov. 1999). 

[52] However, FHA has additional restrictions when there is a second 
lien on the property. The maximum combined LTV cannot exceed 125 
percent of the property value at the time the existing first lien was 
originated. 

[53] As previously discussed, forbearance involves the investor 
agreeing to reduce or suspend payments for a specified period of time, 
during which a portion of the principal balance does not accrue 
interest. 

[54] During 2009 and 2010, Fannie Mae also reached 44,000 borrowers 
through the HomeSaver Advance program, which provided borrowers with a 
loan of up to $20,000 or 15 percent of the original loan to cover the 
amount past due. The loan term was 15 years and the interest rate 5 
percent, with the first 6 months requiring no payments and accruing no 
interest. Fannie Mae phased out the program in 2010. 

[55] As described earlier, a servicer may advance the amount that the 
borrower is past due to bring the loan current and then file a partial 
claim with FHA for the amount advanced. The servicer executes a 
subordinate lien payable to HUD with the borrower in the amount of the 
partial claim that is nonamortizing and does not bear interest. This 
amount is due upon repayment of the first lien or the sale of the 
property. While partial claims do not reduce borrowers' monthly 
payments, they do provide relief to borrowers by allowing them to 
resume monthly payments without having to immediately make up the past 
due amount. 

[56] Prior to establishing this new unemployment forbearance option, 
Fannie Mae instructed its servicers to generally limit forbearance 
periods to no more than 6 months (with no minimum duration) and 
required servicers to obtain permission to extend forbearance periods 
longer than 12 months. Freddie Mac offered short-term forbearance of 3 
months with suspended payments or 6 months with reduced payments and 
long-term forbearance of 4 to 12 months if certain conditions were met 
but could submit a recommendation to Freddie Mac for additional 
forbearance. 

[57] P.L. 111-203. 

[58] A subset of Fannie Mae's deeds-in-lieu are deeds-for-lease, part 
of a program that has been in place since November 2009. Under this 
program, the borrower can receive a lease agreement for up to 12 
months. Fannie Mae officials told us that most borrowers are looking 
to move out of the home at a time that is convenient for them rather 
than looking to stay for an extended period of time. 

[59] Among other things, the consent orders directed servicers to 
undergo an independent review to identify and remediate borrowers 
harmed by error and deficiencies in the foreclosure process. 

[60] Federal Reserve System, Office of the Comptroller of the 
Currency, and the Office of Thrift Supervision Interagency Review of 
Foreclosure Policies and Practices (Washington, D.C.: April 2011). 

[61] These servicers include Bank of America Corporation, JPMorgan 
Chase & Co., Wells Fargo & Company, Citigroup Inc., and Ally Financial 
Inc. (previously known as GMAC and the parent company to GMAC 
Mortgage). 

[62] For more information about this settlement, see [hyperlink, 
http://www.nationalmortgagesettlement.com/]. These servicers are also 
subject to enforcement orders issued by the banking regulators for 
unsafe and unsound foreclosure practices that require them to hire 
third-party consultants to review 2009 and 2010 foreclosure actions 
and remediate borrowers who suffered financial injury as a result of 
errors, misrepresentation, or other deficiencies in the servicers' 
foreclosure practices. We are currently examining the process 
servicers and regulators used to reach out to eligible borrowers to 
inform them of the opportunity to request a third-party consultant 
review of their foreclosure case. If consultants find that borrowers 
have suffered financial injury, they could be eligible for remediation 
such as lump-sum payments, rescinded foreclosures, repayment of out-of-
pocket expenses, or corrected credit reports. 

[63] To examine the extent to which loans were associated with an 
increased likelihood of foreclosure, we conducted analyses on the full 
CoreLogic data set (not a sample), which included loans that were 
active in June 2009, 2010, and 2011. We identified the characteristics 
associated with an increased likelihood of foreclosure through a 
review of our prior work, interviews with and analyses conducted by 
other federal agencies, as well as Federal Reserve System and academic 
econometric modeling. In some cases, the CoreLogic data set did not 
contain information associated with these characteristics--
specifically, negative equity, unemployment, and high interest rate. 
In these cases, we linked additional data to the CoreLogic data. For a 
detailed description of our analysis, please see appendix I. 

[64] CoreLogic estimated that their data covered approximately 65 
percent to 70 percent of prime loans and approximately 50 percent of 
subprime loans. Due to the proprietary nature of these data, we could 
not assess the reliability of these estimates. Due to limited 
understanding of the loan and borrower characteristics of those loans 
not included in the CoreLogic data set, we are unable to reliably 
estimate the total number of loans with an increased likelihood of 
foreclosure for the full universe of loans. 

[65] MBA reports quarterly data on the performance of first-lien 
single family residential mortgage loans in the National Delinquency 
Survey, which it estimates represents about 88 percent of the first-
lien residential mortgage market during the fourth quarter of 2011. We 
took steps to ensure that the data we used were sufficiently reliable 
for our purposes, such as interviewing officials familiar with the 
data. 

[66] CoreLogic's prime loans include conventional loans as well as 
loans insured or guaranteed by government entities, such as FHA and 
VA. Further, prime loans include loans servicers have identified as 
Alt-A loans. Our results do not represent the entire universe of 
mortgage loans and as such may understate the number of loans with an 
increased likelihood of foreclosure. (See appendix I for a description 
of our methodology.) Other housing market stakeholders have published 
recent estimates of the number of borrowers with an increased 
likelihood of foreclosure. Amherst Securities Group LP, a private 
sector company providing analysis of the mortgage market, estimated in 
June 2011 that between about 9 million and 11 million borrowers were 
in danger of foreclosure. The estimate is based on the number of 
borrowers who were: (1) 60 days or more delinquent (estimate between 
80 percent and 90 percent will end in foreclosure), (2) current or 
behind one payment, but had been 60 days or more delinquent in the 
past (estimate between 50 and 65 percent will end in foreclosure), and 
(3) never delinquent 60 days or more but had a current LTV of 100 
percent or greater--negative equity--(likelihood loan will end in 
foreclosure varies depending on extent of negative equity with higher 
negative equity associated with increased likelihood). In November 
2011, the Center for Responsible Lending, a research and policy 
organization, estimated that 3.6 million borrowers were at immediate 
risk of losing their homes to foreclosure. This estimate is based on 
the number of loans originated between 2004 and 2008 that were 60 days 
or more delinquent, including loans in foreclosure, as of February 
2011. 

[67] For example, according to data provided by servicers to FHA, 
approximately 13 percent of delinquent borrowers do not respond to 
servicer outreach efforts. 

[68] Appendix IV provides additional data on the results of our 
analysis for each of the characteristics. 

[69] Approximately 45 percent of prime loans with delinquency of 60 
days or greater were Fannie Mae or Freddie Mac loans and 33 percent 
were held in portfolio or private label securities. In contrast, 65 
percent of the population of prime loans were Fannie Mae or Freddie 
Mac loans and 11 percent were held in portfolio or private label 
securities. 

[70] The amount of equity a homeowner has in a mortgaged property may 
influence how well the mortgage performs. In general, higher levels of 
home equity are associated with lower probabilities of default and 
foreclosure. Equity is a homeowner's financial interest in a property, 
or the difference between the value of a property and the amount still 
owed on the mortgage. Typically, home equity increases over time as 
the mortgage balance is paid down and home values appreciate. However, 
if the home value falls below the amount owed on the mortgage, the 
borrower will be in a position of negative equity. Borrowers with 
nonprime loans may be especially vulnerable to negative equity, 
because they typically make small down payments and, as previously 
discussed, may have loans with payment options that defer payment of 
accrued interest, thereby increasing the outstanding loan balance. 
Yuliya Demyanyk, Ralph S.J. Koijen, and Otto A.C. Van Hemert, 
"Determinants and Consequences of Mortgage Default," Federal Reserve 
Bank of Cleveland Working Paper, no. 1019R (2011) and Laurie S. 
Goodman, Roger Ashworth, Brian Landy, and Ke Yin, "Negative Equity 
Trumps Unemployment in Predicting Defaults," The Journal of Fixed 
Income, vol. 19, no. 4 (2010). Due to limitations of our data our 
analysis does not take into account additional liens. As a result, we 
may overstate the amount of equity a borrower has in their home. 

[71] LTV is the amount of the loan divided by the value of the home. 
Additional characteristics are delinquency of 60 days or more, local 
area unemployment of 10 percent or greater, mortgage interest rate of 
1.5 percent above current market rate, and loan origination features 
associated with an increased likelihood of foreclosure (origination 
credit score of 619 or below, origination LTV of 100 percent or 
higher). 

[72] GAO, Loan Performance and Negative Equity in the Nonprime 
Mortgage Market, [hyperlink, http://www.gao.gov/products/GAO-10-146R] 
(Washington, D.C.: Dec. 16, 2009). 

[73] GAO, Nonprime Mortgages: Analysis of Loan Performance, Factors 
Associated with Defaults, and Data Sources, [hyperlink, 
http://www.gao.gov/products/GAO-10-805] (Washington, D.C.: Aug. 24, 
2010). See also Demyanyk, Koijen, and Van Hemert, "Determinants and 
Consequences of Mortgage Default" pg. 16 and Shane M. Sherlund, "The 
Past, Present, and Future of Subprime Mortgages," Federal Reserve 
Board Finance and Economics Discussion Series, no. 2008-63 
(Washington, DC.: Nov. 2008) 

[74] David M. Brickman and Patric H. Hendershott, "Mortgage 
Refinancing, Adverse Selection, and FHA's Streamline Program," Journal 
of Real Estate Finance and Economics, vol. 21, no. 2 (2000) 

[75] See [hyperlink, http://www.gao.gov/products/GAO-10-805]. Our 
prior work and analyses by Federal Reserve System officials and other 
housing market stakeholders identified additional origination features 
such as low or no documentation of income or assets that may be 
associated with an increased likelihood of foreclosure. Due to 
limitations of our data, we did not include these additional 
origination features in our analysis. 

[76] The foreclosure process can be lengthy, and prior to completing 
the foreclosure process, some loans become current or are paid off, 
either from foreclosure mitigation actions or other means. According 
to RealtyTrac, which collects national data on troubled mortgages, the 
average period to complete a foreclosure was approximately 11 months 
(348 days) during the fourth quarter of 2011. As we previously 
reported, servicers halted or delayed the processing of foreclosures 
near the end of 2010 due to problems with mortgage foreclosure 
documents. See GAO, Mortgage Foreclosures: Documentation Problems 
Reveal Need for Ongoing Regulatory Oversight, [hyperlink, 
http://www.gao.gov/products/GAO-11-433] (Washington, D.C.: May 2, 
2011). This may have resulted in longer time periods to complete 
foreclosures. 

[77] Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der 
Klaauw, "The Financial Crisis at the Kitchen Table: Trends in 
Household Debt and Credit," Federal Reserve Bank of New York Staff 
Report, no. 480 (New York, NY: 2010). 

[78] Ben S. Bernanke, The U.S. Housing Market: Current Conditions and 
Policy Considerations, Board of Governors of the Federal Reserve 
System (2012) and The State of the Nation's Housing 2010. The Joint 
Center for Housing Studies of Harvard University, 2010, (Cambridge, 
Mass. 2010). 

[79] The Bureau of Labor Statistics compiles an alternative indicator--
known as the U-6 measure--to the official unemployment rate that 
represents the number of unemployed people; plus people who want a 
job, are explicitly available for work, and have looked for work 
sometime in the prior year, but are not currently looking; and all 
people working part time for economic reasons. 

[80] Monetary Policy and the State of the Economy, 112th Cong. 2nd 
session (2012) (statement of Ben S. Bernanke, Chairman Board of 
Governors of the Federal Reserve System); Janet L. Yellen, "Housing 
Market Developments and Their Effects on Low-and Moderate-Income 
Neighborhoods" (statement read at Federal Reserve Bank of Cleveland 
Policy Summit, Cleveland, Ohio: June, 9, 2011); and The State of the 
Nation's Housing: 2011, The Joint Center for Housing Studies of 
Harvard University (Cambridge, Mass.: 2011). 

[81] All differences are statistically significant at the 95 percent 
confidence level. 

[82] Treasury estimate includes Fannie Mae and Freddie Mac loans 
serviced by participating HAMP servicers but excludes FHA and VA loans 
and loans that are current or less than 60 days delinquent, which may 
be eligible for HAMP if a borrower is in imminent default. 

[83] The enterprises define seriously delinquent loans as those that 
are 3 or more months past due or loans in the process of foreclosure. 

[84] FHA defines seriously delinquent loans as those 90 days or more 
past due or loans in the process of foreclosure or bankruptcy. 

[85] USDA reported that there were about 83,000 loans that were 30 
days or more delinquent as of December 2011 but did not breakout those 
loans that were 60 or 90 days or more delinquent. Further, the number 
of USDA loans delinquent by 30 days or more as of December 2011 was 
more than double the volume compared to June 2009. VA does not 
publicly report delinquency information about loans it guarantees. 
Using delinquency data reported by MBA and the volume of loan 
guarantees reported in VA's 2011 Annual Benefits report, we estimated 
that there were about 16,000 VA guaranteed loans that were 90 days or 
more delinquent or in the process of foreclosure during fiscal year 
2011. 

[86] We analyzed a sample of loan-level data we obtained from 
CoreLogic which included loans that were modified sometime in the 
period from January 2009 through December 2010. For a detailed 
description of our approach, see appendix I. Results are based on 
those loans that received a modification that reduced the borrower's 
monthly payment and their performance 6 and 12 months after 
modification. Approximately, 88 percent of the loans used in this 
analysis had a monthly payment reduction and the results for this 
group of loans are representative of the complete data set. We 
developed algorithms to identify mortgages that received a 
modification action because direct information on loan modifications 
is not generally available (see app III for a detailed description). 
For the HAMP analysis, we analyzed the performance of loans 12 months 
after modification because of limitations using loan performance 6 
months after modification. See appendix V for additional information 
on our analysis of the CoreLogic and HAMP data sets. 

[87] Treasury's compliance activities relate only to servicers' 
nonenterprise MHA programs. 

[88] The results were similar for the performance of the loans 12 and 
18 months after modification. Appendix V includes additional 
discussion of the methodology and results of our econometric analysis. 

[89] The CoreLogic data does not identify USDA loans, as a result, we 
were not able to analyze USDA loans separately. 

[90] See appendix V for the methodology and results of our econometric 
analysis. 

[91] See GAO, Managing for Results: Enhancing Agency Use of 
Performance Information for Management Decision Making, [hyperlink, 
http://www.gao.gov/products/GAO-05-927] (Washington, D.C.: Sept. 9, 
2005). 

[92] FHA regularly evaluates servicer performance against a standard 
set of indicators. 

[93] FHA collects the majority of these data through its loss claim 
system. The system is used by servicers to file for incentive payments 
along with other payments due to the servicer for the loss mitigation 
action for FHA's special forbearance, standard loan modification, 
partial claim, and FHA-HAMP home retention loss mitigation actions. 

[94] FHA sets broad guidelines that govern servicers' determination of 
borrower eligibility for loss mitigation activities. 

[95] As of March 2012, FHA required servicers to consider foreclosure 
mitigation actions in the following order: special forbearance, 
standard loan modification, partial claim, and then FHA-HAMP. 

[96] This Early Payment Default performance measure is currently used 
by VA to determine whether a new reason cause the default and to 
monitor servicer compliance with underwriting requirements. 

[97] Servicers report to USDA on loan performance through USDA's 
Electronic Data Interchange (EDI) system. USDA collects data from 
servicers on the type of formal loss mitigation action offered to 
borrowers and certain loan and borrower characteristics through its 
loss mitigation servicing plans. 

[98] OCC Mortgage Metrics Report (Treasury). OCC's data on foreclosure 
mitigation efforts are based on loan-level data submitted by nine 
large servicers. OCC estimated that these nine servicers represented 
about 60 percent of all first lien residential mortgages outstanding. 

[99] Under principal forbearance, the outstanding balance on the 
borrower's mortgage is also reduced; however, the borrower is required 
to repay the amount of the principal reduced when the property is 
sold, transferred, or the first lien is paid in full. 

[100] HUD stated that its statutory authority is for principal 
deferment (forbearance) and not principal reduction. According to USDA 
officials, there is no principal forgiveness in the USDA guaranteed 
loan program because it is neither authorized nor permitted. 
Similarly, VA officials stated that VA does not have the authority to 
pay a claim before a loan is terminated, thereby, precluding the use 
of VA funds to provide financial incentives to servicers for forgiving 
principal as part of a loan modification. 

[101] Fannie Mae and Freddie Mac loan modifications do not include 
principal forgiveness as a component. 

[102] The results were not statistically significant at the 10 percent 
level. 

[103] We were not able to assess the impact of principal forgiveness 
using CoreLogic data--which include loans modified through federal and 
nonfederal programs--because we were not able to distinguish between 
principal forbearance and principal forgiveness. 

[104] See appendix V for additional information. 

[105] For loans that have missed more than six payments in the 
preceding 12 months, the incentive payment is 18 cents on the dollar. 

[106] Using the HAMP NPV model for borrowers with current LTV ratios 
greater than 115 percent, FHFA compared projected losses to Fannie Mae 
and Freddie Mac from borrowers receiving principal forbearance 
modifications to borrowers receiving principal forgiveness 
modifications as allowed in the HAMP program. The model, and hence the 
analysis, takes into account the sustainability of the modifications 
and assumes that principal forgiveness reduces the rates of redefault 
on the loans to a greater extent than would forbearance. However, in 
the event of a successful modification, forbearance offers greater 
cash flows to the investor than forgiveness. 

[107] FHFA estimated that about 5 percent of the enterprise's loan 
portfolios that had a current LTV greater than 115 percent but were 
current on their payments as of June 30, 2011, would likely become 
delinquent during the next 6 months based on historical data. 

[108] For example, The Obama Administration's Efforts To Stabilize The 
Housing Market and Help American Homeowners (HUD and Treasury); Making 
Home Affordable: Program Performance Reports (Treasury); and 
Foreclosure Prevention and Refinance Reports (monthly and quarterly, 
Federal Housing Finance Agency). 

[109] The HOPE NOW estimates are from a survey of HOPE NOW members, 
which include approximately 37 million loans and have been 
extrapolated to the entire first-lien industry. HOPE NOW reports data 
on HAMP modifications and "proprietary modifications." According to a 
HOPE NOW official, the proprietary modifications in their survey 
include modifications completed under Fannie Mae, Freddie Mac, and FHA 
programs, as well as modifications completed on loans held in lenders' 
portfolios or in private label securities. To estimate the total 
number of permanent loan modifications through servicers' proprietary 
efforts, we subtracted the modifications completed under federal 
agencies and the enterprises (as reported by the federal agencies and 
the enterprises) from the total modifications estimated by HOPE NOW. 
The OCC data on foreclosure mitigation efforts are based on loan-level 
data submitted by nine large servicers--which are: Bank of America, 
JPMorgan Chase, Citibank, HSBC, MetLife, PNC, U.S. Bank, Wells Fargo, 
and OneWest Bank--that OCC estimated represent about 60 percent of all 
first lien residential mortgages outstanding. 

[110] For example, see GAO, Mortgage Reform: Potential Impacts of 
Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage 
Market, [hyperlink, http://www.gao.gov/products/GAO-11-656] 
(Washington, D.C.: July 19, 2011). 

[111] Generally, Alt-A mortgages serve borrowers whose credit 
histories are close to prime, but the loans often have one or more 
higher risk features such as limited documentation of income or assets. 

[112] In practice, this 'static' information could have been 
overwritten, such as at the time of a loan modification. Therefore all 
original loan term data may not be accurate. We discussed this issue 
with CoreLogic and determined that the data were sufficiently reliable 
for our purposes. Real estate owned are properties acquired by an 
investor, such as FHA or the enterprises, as a result of the 
foreclosure process. 

[113] In addition to our selection criteria, we excluded loans that 
were missing 4 or more months of transactional data. 

[114] For more on negative equity, see Ben S. Bernanke The U.S. 
Housing Market: Current Conditions and Policy Considerations, Federal 
Reserve Board of Governors (2012); Yuliya Demyanyk, Ralph S.J. Koijen, 
and Otto A.C. Van Hemert, "Determinants and Consequences of Mortgage 
Default," Federal Reserve Bank of Cleveland Working Paper, no. 1019R 
(2011); and Laurie S. Goodman, Roger Ashworth, Brian Landy, and Ke 
Yin, "Negative Equity Trumps Unemployment in Predicting Defaults," The 
Journal of Fixed Income, vol. 19, no. 4 (2010). For more on negative 
equity and high unemployment, see Ronel Elul, Nicholas S. Souleles, 
Souphala Chomsisengphet, Dennis Glennon, and Robert Hunt, "What 
'Triggers' Mortgage Default," Federal Reserve Bank of Philadelphia 
Working Paper, no. 10-13 (2010) and Christopher L. Foote, Kristopher 
Gerardi, and Paul S. Willen, "Negative Equity and Foreclosure: Theory 
and Evidence," Federal Reserve Bank of Boston Public Policy Discussion 
Papers, no. 08-3 (2008). For more on high current interest rate, see: 
David M. Brickman and Patric H. Hendershott, "Mortgage Refinancing, 
Adverse Selection, and FHA's Streamline Program," Journal of Real 
Estate Finance and Economics, vol. 21, no. 2 (2000). For more on loan 
origination features, see Sumit Agarwal, Gene Amromin, Itzhak Ben-
David, Souphala Chomsisengphet, and Douglas D. Evanoff, "Market-Based 
Loss Mitigation Practices for Troubled Mortgages Following the 
Financial Crisis," Federal Reserve Bank of Chicago, no. 2011-03 (2010) 
and Yuliya Demyanyk, Otto Van Hemert, "Understanding the Subprime 
Mortgage Crisis," Review of Financial Studies, vol 24, no. 6 (2011), 
first published online May 4, 2009. 

[115] Since the unemployment rates are at the county level we 
converted them to the zip-code level using a crosswalk from county to 
zip code developed by HUD; see "HUD USPS ZIP Code Crosswalk Files" at 
[hyperlink, http://www.huduser.org/portal/print/node/2914] (last 
accessed on 6/8/2011). We conducted a similar analysis to link 
unemployment rates to the HAMP data from Treasury. The data we used 
for our June 2011 analysis were based on preliminary unemployment 
data. For one county in California and the District of Columbia, the 
data from January 2007 through June 2011 were updated after we 
downloaded the data. We compared the updated data to our original data 
and found that the differences were generally small. 

[116] See [hyperlink, http://www.gao.gov/products/GAO-11-288]. 

[117] Due to the proprietary nature of CoreLogic's estimates of its 
market coverage, we could not assess the reliability of these 
estimates. 

[118] In practice, this "static" information could have been 
overwritten, such as at the time of a loan modification. Therefore, 
all original loan term data may not be accurate. We discussed this 
issue with CoreLogic and determined that the data were sufficiently 
reliable for our purposes. 

[119] Generally, servicers stop providing information to CoreLogic 
because servicing rights were transferred from a servicer that 
participated with CoreLogic to a servicer that did not, or because a 
servicer ended its participation with CoreLogic. 

[120] Specifically, we also excluded mortgages if they had an initial 
balance of zero dollars, or if there was more than 3 months difference 
between the month of first payment and the month of origination or 
between the month of origination and the month when the loan was added 
to the CoreLogic data. 

[121] Manuel Adelino ,Kristopher Gerardi, and Paul S. Willen "Why 
Don't Lenders Renegotiate More HomeMortgages? Redefaults, Self-Cures, 
and Securitization" Public Policy Discussion Papers, 09-4, Federal 
Reserve Bank of Boston (July 2009). 

[122] The OCC database was generated by loan-level data submitted by 
nine large servicers--which are: Bank of America, JP Morgan Chase, 
Citibank, HSBC, Metlife, PNC, U.S. Bank, Wells Fargo, and OneWest 
Bank. The OCC uses the data to produce its Mortgage Metrics Reports 
and estimated that these servicers represent about 60 percent of all 
first-lien residential mortgages outstanding. 

[123] The econometric methodology and findings were reviewed by 
officials at the Treasury Department, Department of Housing and Urban 
Development, Federal Housing Finance Agency, Federal Reserve Board, 
and the Office of the Comptroller of the Currency. 

[124] The HAMP program requires borrowers to complete a trial period 
plan before converting to a permanent modification. GAO has 
investigated factors that determine whether an at-risk loan that 
enters the trial period plan under HAMP converts to a permanent 
modification; see [hyperlink, http://www.gao.gov/products/GAO-11-288]. 

[125] See, for example, Adelino et al. (2010) who used the Loan 
Processing Services (LPS) database, and Agarwal (2011a, 2011b) who 
used the OCC-OTS Mortgage Metrics database. The results of our main 
analysis were, however, similar when we excluded the earlier 
modifications for loans with multiple modification actions. 

[126] The CoreLogic data do not contain information on the servicers 
or the property address. 

[127] See appendix III for a description of the algorithm and results 
of identifying modified loans. 

[128] See appendix III for more details on the CoreLogic database and 
our data exclusions. We also excluded government-guaranteed (non-FHA 
or non VA) loans. 

[129] The minimum and maximum values reported in table 20 reflect the 
upper and lower bounds that we used to construct the variables, when 
necessary. 

[130] Servicers of nonenterprise loans and loans not insured by FHA, 
VA, and USDA undertake modifications based on the HAMP guidelines 
while servicers of Fannie Mae and Freddie Mac loans modify loans using 
guidelines from the enterprises. 

[131] See Treasury, Making Home Affordable Program: Servicer 
Performance Report Through December 2010. 

[132] We could not distinguish between principal forgiveness and 
principal forbearance in the CoreLogic data set. 

[133] The estimates do not include second liens. 

[134] In general, loans carried by borrowers with FICO scores below 
620 are regarded to be subprime. 

[135] A complete list of the variables we used from the HAMP database 
is in table 19. Although the CoreLogic database includes HAMP loans, 
we could not directly identify them in the CoreLogic database. 

[136] [hyperlink, http://www.gao.gov/products/GAO-11-288].  

[137] Our reconstructed loan history was very close to Treasury's; see 
Treasury, Making Home Affordable Program: Servicer Performance Report 
Through June 2011. 

[138] See, for example. Adelino and others (2010), Agarwal and others 
(2011b), and Karikari (2011). The geographic area fixed-effects 
control for factors that vary across geographic areas but are the same 
within them, such as the type of foreclosure laws and local efforts at 
mitigating foreclosures or their indirect effects, whether these 
characteristics are observed or unobserved. Time fixed effects are 
also included to account for changes in macroeconomic factors over 
time. Also, fixed effects for the investors control for all stable 
characteristics of the investors (such as policies on loan 
modifications). Servicer fixed effects control for factors such as the 
servicers' capacity to modify loans. 

[139] Loan modification could be modeled as a two-stage process--
first, the at-risk borrower's decision to accept an offer of 
assistance, and second, the performance of the loan after 
modification. See, for example, Capone and Metz (2004). However, we do 
not have the information to model the first stage. 

[140] This approach is appropriate, since we are primarily interested 
in the probability that a modified loan redefaults within a certain 
time period and not the hazard rate of the redefault (i.e., the 
probability that a loan redefaults at a certain time if it has not 
already redefaulted up to that time). 

[141] This study contributes to the research on the performance of 
loans that have received modifications by extending our knowledge of 
the performance of modified loans to a more recent time period, using 
loans that were modified between the first quarter of 2009 and the 
fourth quarter of 2010. Previous studies used different databases or 
analyzed the period before 2009. We also investigate the effectiveness 
of HAMP modifications relative to other modification programs. 

[142] The OLS estimates are arguably more consistent in specifications 
given the large number of fixed effects in our model. The estimated 
coefficients are qualitatively similar to using the logistic 
regression estimation (for example, for the model with the payment 
reduction as regressor in column 1 of table 24). Agarwal and others 
(2011a, 2011b) also used a linear regression to estimate their 
probability models of redefaults 

[143] We use a threshold of 5-percent significance level for 
statistical significance. 

[144] We also estimated separate results for prime and subprime loans. 
The results for the prime loans are generally similar to what is 
presented in table 22. Results for subprime loans were similar but 
generally not as statistically significant, partly due to a limited 
sample. 

[145] The results are generally consistent with Agarwal and others 
(2011a, 2011b). 

[146] In all the regression estimates, an increase in a modification 
action represents an increase in the payment reduction, rate or 
balance reduction, or capitalization, or a term extension. 

[147] Agarwal and others (2011b) also obtained statistically 
insignificant results, but Voicu and others (2011) using data for New 
York City, found significant results. 

[148] Agarwal and others (2011a) obtained a positive effect, but 
Agarwal and others (2011b) had an inconclusive outcome. 

[149] The effects for the current LTV at modification are similar to 
Agarwal and others (2011b). 

[150] The first quarter of 2009 is the reference category for the 
estimation. 

[151] The results are similar to Agarwal and others (2011a). Fannie 
Mae and Freddie Mac loans are unique because they are generally of 
high quality, carry no default risk for the investor because they are 
guaranteed by the government, and offer different incentives to the 
servicers to offer loan modifications. 

[152] The effects are similar to Agarwal and others (2011a, 2011b). 

[153] We note that Voicu and others (2011) compared the effectiveness 
of HAMP and non-HAMP loan modifications for New York City, using the 
OCC-OTS Mortgage Metrics database. Although, their findings are 
broadly consistent with our results, there are substantial differences 
between our study and theirs. For instance, apart from conducting 
their analysis for only New York City, they combine all balance 
changes; i.e., they do not separate balance reductions from 
capitalization. 

[154] The impact of some of the key borrower and loan characteristics 
(such as delinquency status prior to the modification and current LTV) 
are similar in the CoreLogic and HAMP data. 

[155] The inconclusive result for principal forgiveness is likely due 
to the fact that this modification action is used much less frequently 
compared to principal forbearance. 

[156] This check recognizes that these borrowers are vulnerable and 
have elevated potential for subsequent redefault long after the 
initial cure; see, for example, Ambrose and Capone (2000). 

[157] See, for example, Adelino and others (2010). 

[158] Essentially, the default risk estimates for pools of mortgages 
that were originated long before they were included in the CoreLogic 
database may exhibit survivorship bias. That is, those estimates may 
be distorted because we cannot detect the loans that were originally 
in these pools but defaulted prior to their inclusion in the CoreLogic 
data set. We can only analyze the survivors, potentially resulting in 
bias in our estimates of default risk. 

[159] See, for example, Adelino and others (2010). 

[160] See, for example, Agarwal and others (2011a) which uses FICO 
credit scores and the documentation status of the loans at 
origination. Since the data are not available for documentation 
status, we used the delinquency status of the borrower and the FICO 
credit scores at the time of the modification, both of which are 
predictive of redefault. 

[161] The CoreLogic data set did not contain complete information 
about loan investors (e.g., Fannie Mae or Freddie Mac, portfolio, and 
private label), especially among subprime loans. To conduct this 
analysis, we excluded loans that did not have information about the 
investor, and then excluded Fannie Mae and Freddie Mac loans. 

[162] Because of the challenge of identifying adjustable-rate and 
hybrid mortgages (ARM) that have received modifications, we estimated 
separate models for fixed-rate mortgages and ARMs. The results were 
generally consistent with our findings. 

[163] See, for example, Agarwal and others (2011b). Furthermore, a 
complete evaluation of the modification process should include a cost-
benefit (or net present value) analysis in addition to redefault. See, 
for example, Ambrose and Capone (1996). Also, we could not include 
certain borrower and loan characteristics that could affect redefault--
for instance, the borrower's financial condition at the time of 
modification. Nonetheless, our analysis is consistent with previous 
research. 

[End of section] 

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