FORECLOSURE 

MITIGATION

Agencies Could 

Improve Effectiveness 

of Federal Efforts 

with Additional Data 

Collection and 

Analysis

Report to Congressional Addressees

June 2012

GAO-12-296

United States Government Accountability Office

GAO
View GAO-12-296 or key components. For 

more information, contact Mathew J. Scirè at 

(202) 512-8678 or sciremj@gao.gov. 

Highlights of GAO-12-296, a report to 

congressional committees

June 2012

FORECLOSURE MITIGATION

Agencies Could Improve Effectiveness of Federal 

Efforts with Additional Data Collection and Analysis

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. 

Total Permanent Loan Modifications through Federal, Fannie Mae, and Freddie Mac Programs, 

January 2009 through December 2011

Note: Data used were the most currently available from the agencies and enterprises.

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

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.

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.
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 reevaluating 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.

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

Note: Loans with an increased likelihood of foreclosure include loans 60 days or more delinquent plus

Highlights of GAO-12-296 (continued)

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.
Page i GAO-12-296 Foreclosure Mitigation

Letter 1 

Background 5

Responses to the Foreclosure Crisis Have Focused on Loan 

Modifications and Other Home Retention Options 10

Millions of Loans Face Elevated Risk of Foreclosure and Indicators 

Show Housing Market Remains Weak 34

Enhancing Current Federal Foreclosure Mitigation Efforts Could 

Improve Their Effectiveness 47

Conclusions 68

Recommendations 71

Agency Comments and Our Evaluation 72

Appendix I Objectives, Scope, and Methodology 77

Appendix II Foreclosure Mitigation Efforts 86

Appendix III Description of GAO’s Methodology to Identify Loan Modifications 100

Appendix IV Loans with Characteristics Associated with Increased Likelihood 

of Foreclosure 107

Appendix V Description of GAO’s Econometric Analysis of Redefault of 

Modified Loans 115

Appendix VI Comments from the Department of Treasury 165

Appendix VII Comments from the Department of Housing and Urban 

Development 167

Contents
Page ii GAO-12-296 Foreclosure Mitigation

Appendix VIII Comments from the Department of Veterans Affairs 169

Appendix IX Comments from the Federal Housing Finance Agency 172

Appendix X GAO Contact and Staff Acknowledgments 175

Tables

Table 1: Total Permanent Modifications from 2009 through 2011, by 

Efforts at Federal Agencies and the Enterprises 15

Table 2: Screens Used to Identify Loan Modifications 103

Table 3: Relationship between OCC and GAO Modification Status 

at the Loan Level 105

Table 4: Number and Percentage of Prime Loans with 

Characteristics Associated with Increased Likelihood of 

Foreclosure, June 2009 through June 2011 108

Table 5: Number and Percentage of Subprime Loans with 

Characteristics Associated with Increased Likelihood of 

Foreclosure, June 2009 through June 2011 108

Table 6: Percentage of Prime Loans by Performance Status for All 

Loans and Characteristics Associated with Increased 

Likelihood of Foreclosure, June 2011 109

Table 7: Percentage of Subprime Loans by Performance Status for 

All Loans and Characteristics Associated with Increased 

Likelihood of Foreclosure, June 2011 109

Table 8: Percentage of Prime Loans by Investor for All Loans and 

Characteristics Associated with Increased Likelihood of 

Foreclosure, June 2011 110

Table 9: Percentage of Prime Loans by Loan Type for All Loans and 

Characteristics Associated with Increased Likelihood of 

Foreclosure, June 2011 110

Table 10: Percentage of Prime Loans by Loan Product Type for All 

Loans and Characteristics Associated with Increased 

Likelihood of Foreclosure, June 2011 110

Table 11: Percentage of Subprime Loans by Loan Product Type for 

All Loans and Characteristics Associated with Increased 

Likelihood of Foreclosure, June 2011 111
Page iii GAO-12-296 Foreclosure Mitigation

Table 12: Percentage of Prime and Subprime Loans with 

Characteristics Associated with Increased Likelihood of 

Foreclosure by Number of Characteristics per Loan, June 

2011 111

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 112

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 112

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 113

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 113

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 114

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 114

Table 19: List of Variables from CoreLogic and HAMP Databases 118

Table 20: Summary Statistics of Variables Used in Regressions 

Related to Redefault within 6 Months of Modification, 

Using CoreLogic Data 123

Table 21: Selected Borrower and Loan Characteristics Related to 

Redefault within 12 Months of Modification, using of 

CoreLogic and HAMP Data 127

Table 22: Probability Regression Estimates of Redefaults of 

Modified Loans within 6 Months, Using CoreLogic Data 131

Table 23: Comparison of Estimated Changes in Redefaults of 

Modified Loans within 12 Months: CoreLogic versus HAMP 

Data Sets 140
Page iv GAO-12-296 Foreclosure Mitigation

Table 24: Probability Regression Estimates of Redefaults of 

Modified Loans within 12 Months: CoreLogic Data 141

Table 25: Probability Regression Estimates of Redefaults of 

Modified Loans within 12 Months: HAMP Data 144

Table 26: Probability Regression Estimates of Redefaults for 

Decreases in Monthly Payments: Loan Modifications in 

CoreLogic Data 148

Table 27: Predicted Redefault Rates and Distribution of Payment 

Reductions (within 6 months of modification), by 

Modification Action and Size of Payment Reduction 149

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 151

Table 29: Predicted Redefault Rates and Distribution of Payment 

Reductions (within 6 months of modification), by 

Unemployment Rate and Size of Payment Reduction 153

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 155

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 159

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 159

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 160

Table 34: Predicted Redefault Rates and Distribution of Payment 

Reductions (within 6 Months of Modification) for NonEnterprise Prime Loans (Excluding GovernmentGuaranteed Loans), by Modification Action and Size of 

Payment Reduction 160

Table 35: Predicted Redefault Rates and Distribution of Payment 

Reductions (within 6 Months of Modification) for FHA 
Page v GAO-12-296 Foreclosure Mitigation

Loans, by Modification Action and Size of Payment 

Reduction 161

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 161

Figures

Figure 1: Prime and Subprime Modifications by Type and Payment 

Reductions Greater Than 20 Percent, January 2007 

through June 2011 13

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 14

Figure 3: Total Permanent Loan Modifications through Programs at 

Federal Agencies and the Enterprises, January 2009 

through December 2011 16

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 36

Figure 5: Percentage of CoreLogic Loans with Delinquency and 

Those with Multiple Characteristics Associated with an 

Increased Likelihood of Foreclosure, June 2011 41

Figure 6: Percentage of Loans in Default 90 Days or More or in 

Foreclosure and Recession Periods, March 1979 through 

December 2011 43

Figure 7: Home Prices and Recession Periods, January 1976 

through June 2011 44

Figure 8: Value of Home Equity and Aggregate Mortgage Debt and 

Recession Periods, 1945 through 2011 45

Figure 9: Percentage Decrease in Monthly Payments and 6-month 

Redefault Rates of Loans Modified, January 2009 through 

December 2010 53

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 55

Figure 11: Volume of Modification Actions and Predicted 6-Month 

Redefault Rates of Loans Modified by Modification Type, 

January 2009 through December 2010 56
Page vi GAO-12-296 Foreclosure Mitigation

Figure 12: Redefault Rate by Percentage of Monthly Payment 

Reduction for Loans Modified by Selected LTV Categories, 

January 2009 through December 2010 57

Figure 13: Volume of Modifications with Principal Forgiveness 

Actions, 2009 through 2011 64

Figure 14 HAMP Permanent First Lien Loan Modifications 

Completed by Calendar Quarter, 2009 through 2011 86 

Figure 15: Fannie Mae-Foreclosure Mitigation Actions Completed 

by Calendar Quarter, 2009 through 2011 88 

Figure 16: Freddie Mac Foreclosure Mitigation Actions Completed 

by Calendar Quarter, 2009 through 2011 90 

Figure 17: FHA Formal Foreclosure Mitigation Actions Completed 

by Calendar Quarter, 2009 through 2011 92 

Figure 18: VA Foreclosure Mitigation Actions Completed by 

Calendar Quarter, 2009 through 2011 94 

Figure 19: USDA Foreclosure Mitigation Actions Approved by 

Calendar Quarter, 2009 through 2011 96 

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 106

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 150

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 152

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 154

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 156

Figure 25: Predicted Redefault Rates and Distribution of Payment 

Reductions (within 6 Months of Modification), by Loan 

Type and Size of Payment Reduction 162
Page vii GAO-12-296 Foreclosure Mitigation

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

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-12-296 Foreclosure Mitigation

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.1

 

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.

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.

 
 

Page 2 GAO-12-296 Foreclosure Mitigation

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.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.3

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 governmentsponsored 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.

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.

4

 

2

Section 116 of EESA, 122 Stat. at 3783 (codified at 12 U.S.C. § 5226). 

We did not independently confirm the accuracy of the 

3

See, for example, GAO, Troubled Asset Relief Program: As Treasury Continues to Exit 

Programs, Opportunities to Enhance Communication on Costs Exist, 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, GAO-11-288 (Washington, D.C.: Mar. 17, 2011); and Troubled Asset Relief 

Program: Status of Programs and Implementation of GAO Recommendations, 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.
 

Page 3 GAO-12-296 Foreclosure Mitigation

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.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.6

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.

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.

7

 

5

CoreLogic is a private company that provides data, analytics, technology, and services 

related to the mortgage industry, among other things.

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 

6

For example, see GAO, Mortgage Reform: Potential Impacts of Provisions in the DoddFrank Act on Homebuyers and the Mortgage Market, 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. 
 

Page 4 GAO-12-296 Foreclosure Mitigation

included known modifications (see app. 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 publically 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 loanlevel data we obtained from Treasury on HAMP loans. Again, we took 

steps to ensure that the data we used were sufficiently reliable for our 
 

Page 5 GAO-12-296 Foreclosure Mitigation

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.

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 2006.8

 

8

GAO, Information on Recent Default and Foreclosure Trends for Home Mortgages and 

Associated Economic and Market Developments,

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 

GAO-08-78R (Washington, D.C.: Oct. 

16, 2007).

Background 

Current Housing Situation
 

Page 6 GAO-12-296 Foreclosure Mitigation

nationwide, and weaknesses in the servicing industry’s response to the 

large number of delinquent borrowers.9

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 

 

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).

The Mortgage Market
 

Page 7 GAO-12-296 Foreclosure Mitigation

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.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.

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.

 

10Fannie 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. 

Delinquency, Default, and 

Foreclosure
 

Page 8 GAO-12-296 Foreclosure Mitigation

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.11

 

11GAO, Vacant Properties: Growing Number Increases Communities Costs and 

Challenges, 

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 

GAO-12-34 (Washington, D.C.: Nov. 4, 2011).
 

Page 9 GAO-12-296 Foreclosure Mitigation

in household wealth and an associated ratcheting down of aggregate 

consumption.

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.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 

 

12Principal 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.

Options to Avoid 

Foreclosure
 

Page 10 GAO-12-296 Foreclosure Mitigation

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.

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.13

 

13Generally, 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.

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 

Responses to the 

Foreclosure Crisis 

Have Focused on 

Loan Modifications 

and Other Home 

Retention Options
 

Page 11 GAO-12-296 Foreclosure Mitigation

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.14

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.15

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 

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.

 

14In 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, webbased tools to facilitate the submission of borrower documents to servicers, and thirdparty mediation.

15These 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.

Modification Activity 

Peaked in Early 2010 as 

More Borrowers Received 

Payment Reductions
 

Page 12 GAO-12-296 Foreclosure Mitigation

reamortizing (see fig. 1).16

 

16We 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.

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.
 

Page 13 GAO-12-296 Foreclosure Mitigation

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

through June 2011

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.

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 fig. 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.
 

Page 14 GAO-12-296 Foreclosure Mitigation

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

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.

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 mid2009, 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.
 

Page 15 GAO-12-296 Foreclosure Mitigation

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

Number of permanent loan 

modifications

Treasury HAMP permanent modifications 

(nonenterprise and enterprise)

933,000

Nonenterprise 452,000

Enterprise 481,000

Fannie Mae and Freddie Mac non-HAMP permanent 

modifications

579,000

FHA standard modifications 371,000

FHA-HAMP modifications 13,000

VA standard and VA-HAMP modifications 30,000

USDA traditional and special loan servicing 

modifications

13,000

Total 1,939,000

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

Loan modification activity through federal agencies and the enterprises

peaked in early 2010 and has subsequently generally continued to 

decline through December 2011 (see fig. 3).

Loan Modification 

Initiatives at Federal 

Agencies and the 

Enterprises Have Reached 

Nearly 2 Million Borrowers 

and Have Been Recently 

Expanded 
 

Page 16 GAO-12-296 Foreclosure Mitigation

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

through December 2011

As shown in table 1, HAMP has been the federal government’s largest 

program for assisting troubled homeowners.17

 

17The affordability structure of HAMP follows the post-modification 31 percent debt-toincome 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.

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 

Home Affordable Modification 

Program (HAMP)
 

Page 17 GAO-12-296 Foreclosure Mitigation

Program (MHA)—set HAMP apart from other efforts.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.19

• cost-sharing arrangement between the investor and Treasury for 

lowering the borrower’s monthly mortgage payment;

Generally, HAMP’s main features are:

20

• standardized net present value (NPV) test that is applied to each loan 

to evaluate whether a modification is financially beneficial to the 

investor;21

 

18Treasury 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. 

19Treasury 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.

20Costsharing 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.

21The 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.
 

Page 18 GAO-12-296 Foreclosure Mitigation

• 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;22

• structured set of incentive payments made by Treasury to servicers, 

investors, and borrowers.

and

Borrowers must be delinquent or at risk of imminent default in order to be 

eligible for HAMP.23

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.

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.

24

 

22The 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.

Meanwhile, Fannie Mae 

23For 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.

24The 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).
 

Page 19 GAO-12-296 Foreclosure Mitigation

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 2011.25

Further, more than 930,000 homeowners have had their trial or 

permanent loan modifications canceled.26

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.

 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.

27

 

25The 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.

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 

26Borrowers 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).

27The 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.
 

Page 20 GAO-12-296 Foreclosure Mitigation

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.28

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-tomarket 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.

Treasury had paid $8.8 million in PRA 

incentives to participating servicers as of December 2011.

29

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 

 

28These 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.

29See appendix II for a more detailed description of the various foreclosure mitigation 

efforts offered by Treasury.

Fannie Mae and Freddie Mac
 

Page 21 GAO-12-296 Foreclosure Mitigation

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 2011.30

In April 2011, FHFA directed the enterprises to align their requirements 

for certain servicing practices.

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.

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.32

 

30Prior 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.

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 

31FHFA, which is the regulator and conservator, has direct supervisory authority over 

Fannie Mae’s and Freddie Mac’s activities.

32Initially, the enterprises required the interest rate to be reduced to 5 percent. However, 

this rate is recalculated periodically based on market conditions.
 

Page 22 GAO-12-296 Foreclosure Mitigation

and Freddie Mac made these requirements and servicing practices 

effective for all loans on October 1, 2011.33

FHA, VA, and USDA offer their own loan modification options for troubled 

mortgages.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.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.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 

 

33See appendix II for a more detailed description of the various foreclosure mitigation 

efforts offered by the enterprises.

34See appendix II for a more detailed description of the various foreclosure mitigation 

efforts offered by FHA, VA, and USDA.

35USDA’s traditional loan modification program does not offer term extensions.

36As 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. 

Other Federal Programs 
 

Page 23 GAO-12-296 Foreclosure Mitigation

lien is paid in full.37

• In January 2010, VA issued guidelines for VA-HAMP, which will be 

available until Treasury’s HAMP expires.

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.

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 2011.39 The incentives for servicers associated 

with these modifications totaled about $15 million in costs to VA.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, 

 

37FHA 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. 

38VA 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. 

39According 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.

40Loans that are reportable defaults at the time the modification is completed (VA HAMP 

modifications and normal modifications) are eligible for VA incentive payments.
 

Page 24 GAO-12-296 Foreclosure Mitigation

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.41

 

41Treasury’s incentive program for FHA-HAMP modifications is called Treasury FHAHAMP, 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.

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.
 

Page 25 GAO-12-296 Foreclosure Mitigation

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.42

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.43

 

42GAO 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.

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’ 

43To 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. 

Servicers Have Also 

Focused on Loan 

Modification Programs to 

Help Address the 

Foreclosure Crisis
 

Page 26 GAO-12-296 Foreclosure Mitigation

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.

44 As a result, proprietary loan modification 

programs may reach homeowners who are ineligible for HAMP and other 

federal programs.

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, 2011.45

 

44As noted previously, Treasury recently announced HAMP Tier 2, which does not require 

mortgage payments to exceed 31 percent of monthly income. 

Approximately 91 percent of HARP refinances have gone to borrowers 

with current LTV ratios between 80 percent and 105 percent. According to 

45Fannie Mae and Freddie Mac completed more than 9 million additional refinances 

through other refinance programs.

Refinancing Programs 

Have Shifted to Reach 

Borrowers with Little or 

Negative Equity, but 

Associated Costs Relative 

to Participation Raise 

Questions 
 

Page 27 GAO-12-296 Foreclosure Mitigation

Fannie Mae, borrowers who refinanced in 2011 under its HARP effort 

saved an average of $151 on their monthly mortgage payments.46

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.

Both 

Fannie Mae and Freddie Mac expected that the program would have 

minimal net costs to them.

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.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 FHAinsured 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.49

 

46This 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.

Through December 2011, FHA Short 

47Lenders 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. 

48For 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.

49In 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.
 

Page 28 GAO-12-296 Foreclosure Mitigation

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.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.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.52

 

50In 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. 

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.

51GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: Nov. 1999).

52However, 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.
 

Page 29 GAO-12-296 Foreclosure Mitigation

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.

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.53

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 

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.

 

53As 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.

Other Home Retention 

Efforts Provide Temporary 

Relief to Borrowers
 

Page 30 GAO-12-296 Foreclosure Mitigation

completed under their existing programs since January 2009.54 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.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.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 

 

54During 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.

55As 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. 

56Prior 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.
 

Page 31 GAO-12-296 Foreclosure Mitigation

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.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.

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 

 

57P.L. 111-203.

Programs that Facilitate 

Short Sales and Deeds-inLieu of Foreclosure Have 

Been Implemented or 

Expanded 
 

Page 32 GAO-12-296 Foreclosure Mitigation

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.58

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.

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 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.59

 

58A 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. 

These changes included 

establishing compliance programs for their loss mitigation and loan 

modification activities and dedicating resources to communicating with 

59Among 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.

Recent Federal and State 

Enforcement Actions 

Require Servicers to Assist 

Struggling Homeowners
 

Page 33 GAO-12-296 Foreclosure Mitigation

borrowers in ways that avoid confusion and provide continuity (e.g., 

through providing a single point of contact).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.61

 

60Federal 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). 

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 

61These 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).
 

Page 34 GAO-12-296 Foreclosure Mitigation

steps to better ensure information provided in federal bankruptcy court is 

accurate.62

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).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.64

 

62For more information about this settlement, see 

For example, according to Mortgage 

Banker Association (MBA) data, as of June 2011, approximately 4 million 

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.

63To 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. 

64CoreLogic 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. 

Millions of Loans 

Face Elevated Risk of 

Foreclosure and 

Indicators Show 

Housing Market 

Remains Weak
 

Page 35 GAO-12-296 Foreclosure Mitigation

loans had been delinquent for 60 days or more.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.

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 2011.66

 

65MBA 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. 

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 fig. 4). In addition to those loans 

that were 60 days or more delinquent, we identified other characteristics 

66CoreLogic’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. 

Foreclosure May Remain 

High Primarily Due to the 

Large Number of 

Delinquent Loans
 

Page 36 GAO-12-296 Foreclosure Mitigation

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

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.
 

Page 37 GAO-12-296 Foreclosure Mitigation

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 fig. 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.67

In total we analyzed the CoreLogic data for five characteristics associated 

with an increased likelihood of foreclosure.68

• 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 

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.

 

67For example, according to data provided by servicers to FHA, approximately 13 percent 

of delinquent borrowers do not respond to servicer outreach efforts. 

68Appendix IV provides additional data on the results of our analysis for each of the 

characteristics.
 

Page 38 GAO-12-296 Foreclosure Mitigation

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.69

• 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.

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.

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.71

 

69Approximately 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. 

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 

70The 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.

71LTV 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).
 

Page 39 GAO-12-296 Foreclosure Mitigation

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.72

• 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.

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).

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.74

 

72GAO, Loan Performance and Negative Equity in the Nonprime Mortgage Market, 

GAO-10-146R (Washington, D.C.: Dec. 16, 2009).

73GAO, Nonprime Mortgages: Analysis of Loan Performance, Factors Associated with 

Defaults, and Data Sources, 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)

74David 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)
 

Page 40 GAO-12-296 Foreclosure Mitigation

• 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.75

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 fig. 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.

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.

 

75See 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. 
Page 41 GAO-12-296 Forclosure Mitgation 

Figure 5: Percentage of CoreLogic Loans with Delinquency and Those with Multiple Characteristics Associated with an 

Increased Likelihood of Foreclosure, June 2011
 

Page 42 GAO-12-296 Foreclosure Mitigation

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.76

 

76The 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, 

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 fig. 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.

GAO-11-433 (Washington, 

D.C.: May 2, 2011). This may have resulted in longer time periods to complete 

foreclosures.

The Volume of Seriously 

Delinquent Loans Remains 

High
 

Page 43 GAO-12-296 Foreclosure Mitigation

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

December 2011

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 fig. 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.

Other Key Indicators 

Suggest the Housing 

Market Remains Weak
 

Page 44 GAO-12-296 Foreclosure Mitigation

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

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 fig. 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 
 

Page 45 GAO-12-296 Foreclosure Mitigation

down debt and lenders’ tightened lending standards.77

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

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.

Note: In 2011 constant dollars.

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 

 

77Meta 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).
 

Page 46 GAO-12-296 Foreclosure Mitigation

poor performance.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 2011.79

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 

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.

 

78Ben 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).

79The 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. 
 

Page 47 GAO-12-296 Foreclosure Mitigation

credit.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 

2010.81

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 enterprisebacked 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.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, 2011.83

 

80Monetary 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).

81All differences are statistically significant at the 95 percent confidence level.

82Treasury 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.

83The enterprises define seriously delinquent loans as those that are 3 or more months 

past due or loans in the process of foreclosure.

Enhancing Current 

Federal Foreclosure 

Mitigation Efforts 

Could Improve Their 

Effectiveness 
 

Page 48 GAO-12-296 Foreclosure Mitigation

• FHA reported that about 711,000 of its loans were seriously 

delinquent for the month of December 2011.84 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.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 

 

84FHA defines seriously delinquent loans as those 90 days or more past due or loans in 

the process of foreclosure or bankruptcy.

85USDA 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 publically 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.
 

Page 49 GAO-12-296 Foreclosure Mitigation

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.

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.86

 

86We 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.

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 

Most but Not All Federal 

Agencies and the 

Enterprises Have 

Increased Efforts to Reach 

Struggling Borrowers 

Early in a Delinquency
 

Page 50 GAO-12-296 Foreclosure Mitigation

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.87

• 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.

Issues related to identifying and contacting potentially 

eligible borrowers were contributing factors to Treasury’s decision to 

withhold servicer incentive payments from certain 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

 

87Treasury’s compliance activities relate only to servicers’ nonenterprise MHA programs. 
 

Page 51 GAO-12-296 Foreclosure Mitigation

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 
 

Page 52 GAO-12-296 Foreclosure Mitigation

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.

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 

FHA, VA, and USDA Have 

Not Done the Analyses 

Needed to Minimize Costs 

and Assess the 

Effectiveness of their 

Actions 
 

Page 53 GAO-12-296 Foreclosure Mitigation

payments reduced the 6-month redefault rate (see fig. 9).88

Figure 9: Percentage Decrease in Monthly Payments and 6-month Redefault Rates 

of Loans Modified, January 2009 through December 2010

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.

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.

 

88The 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. 
 

Page 54 GAO-12-296 Foreclosure Mitigation

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.89

 

89The CoreLogic data does not identify USDA loans, as a result, we were not able to 

analyze USDA loans separately.

As figure 10 illustrates, 45 percent of FHAmodified 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 VAmodified loans was 15 percent, which was similar to other loan types.
 

Page 55 GAO-12-296 Foreclosure Mitigation 

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 

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 fig. 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 
 

Page 56 GAO-12-296 Foreclosure Mitigation

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

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

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).
 

Page 57 GAO-12-296 Foreclosure Mitigation

Figure 12: Redefault Rate by Percentage of Monthly Payment Reduction for Loans 

Modified by Selected LTV Categories, January 2009 through December 2010

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.90

 

90See appendix V for the methodology and results of our econometric analysis.
 

Page 58 GAO-12-296 Foreclosure Mitigation

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.91

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.

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.

92

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 

Recently, FHA began to require trial modification payment periods for 

certain foreclosure mitigation actions. FHA expects this will reduce 

redefault rates.

 

91See GAO, Managing for Results: Enhancing Agency Use of Performance Information for 

Management Decision Making, GAO-05-927 (Washington, D.C.: Sept. 9, 2005).

92FHA regularly evaluates servicer performance against a standard set of indicators. 
 

Page 59 GAO-12-296 Foreclosure Mitigation

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.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.94

 

93FHA 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.

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.

94FHA sets broad guidelines that govern servicers’ determination of borrower eligibility for 

loss mitigation activities.
 

Page 60 GAO-12-296 Foreclosure Mitigation

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.95

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.

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.

96

 

95As 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. 

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 

96This 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.
 

Page 61 GAO-12-296 Foreclosure Mitigation

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.97

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 

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.

 

97Servicers 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. 
 

Page 62 GAO-12-296 Foreclosure Mitigation

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.

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 fig 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.98

 

98OCC 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.

In contrast, 

more than three-quarters of all modifications during the fourth quarter of 

Some Evidence Suggests 

That Principal Forgiveness 

Could Be an Effective 

Foreclosure Mitigation 

Action in Certain 

Circumstances, but 

Experience with This Tool 

Is Limited
 

Page 63 GAO-12-296 Foreclosure Mitigation

2011 included capitalization or rate reduction, more than half received a 

term extension, and almost a quarter of modifications included principal 

forbearance.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.

100

 

99Under 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.

100HUD 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.
 

Page 64 GAO-12-296 Foreclosure Mitigation

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

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.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.102

 

101Fannie Mae and Freddie Mac loan modifications do not include principal forgiveness as 

a component.

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 

102The results were not statistically significant at the 10 percent level.
 

Page 65 GAO-12-296 Foreclosure Mitigation

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.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.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.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 

 

103We 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.

104See appendix V for additional information.

105For loans that have missed more than six payments in the preceding 12 months, the 

incentive payment is 18 cents on the dollar.
 

Page 66 GAO-12-296 Foreclosure Mitigation

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.106

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 

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.

 

106Using 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.
 

Page 67 GAO-12-296 Foreclosure Mitigation

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.107

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 

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.

 

107FHFA 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.
 

Page 68 GAO-12-296 Foreclosure Mitigation

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.

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 

Conclusions 
 

Page 69 GAO-12-296 Foreclosure Mitigation

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 
 

Page 70 GAO-12-296 Foreclosure Mitigation

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 
 

Page 71 GAO-12-296 Foreclosure Mitigation

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 costeffectiveness 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. 

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.

Recommendations 
 

Page 72 GAO-12-296 Foreclosure Mitigation

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.

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 

Agency Comments 

and Our Evaluation 
 

Page 73 GAO-12-296 Foreclosure Mitigation

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. 
 

Page 74 GAO-12-296 Foreclosure Mitigation

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 

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.

Mathew J. Scirè

Director

Financial Markets and

 Community Investment
 

Page 75 GAO-12-296 Foreclosure Mitigation

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 Budget 

House of Representatives
 

Page 76 GAO-12-296 Foreclosure Mitigation

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
Appendix I: Objectives, Scope, and 

Methodology

Page 77 GAO-12-296 Foreclosure Mitigation

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, VAHAMP, 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.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 78 GAO-12-296 Foreclosure Mitigation

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 2011.1

 

1

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).

To examine the volume, characteristics and 

performance of nonfederal foreclosure mitigation efforts, we reviewed 

publically available data reported by HOPE NOW (an industry 
Appendix I: Objectives, Scope, and 

Methodology

Page 79 GAO-12-296 Foreclosure Mitigation

association) and servicers (through OCC’s Mortgage Metrics Reports)2

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.

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.

3 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.4

 

2

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. 

For each mortgage, the CoreLogic database 

3

For example, see GAO, Mortgage Reform: Potential Impacts of Provisions in the DoddFrank Act on Homebuyers and the Mortgage Market, GAO-11-656 (Washington, D.C.:

July 19, 2011).

4

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.
Appendix I: Objectives, Scope, and 

Methodology

Page 80 GAO-12-296 Foreclosure Mitigation

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).5

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 app. 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 

 

5

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. 
Appendix I: Objectives, Scope, and 

Methodology

Page 81 GAO-12-296 Foreclosure Mitigation

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.6

 

6

In addition to our selection criteria, we excluded loans that were missing 4 or more 

months of transactional data. 

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 
Appendix I: Objectives, Scope, and 

Methodology

Page 82 GAO-12-296 Foreclosure Mitigation

619 or below and an LTV of 100 percent or higher at the time of 

origination.7

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 

 

7

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.
Appendix I: Objectives, Scope, and 

Methodology

Page 83 GAO-12-296 Foreclosure Mitigation

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.8

• 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 

 

8

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 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.
Appendix I: Objectives, Scope, and 

Methodology

Page 84 GAO-12-296 Foreclosure Mitigation

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-
Appendix I: Objectives, Scope, and 

Methodology

Page 85 GAO-12-296 Foreclosure Mitigation

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.9

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. 

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.

 

9 See GAO-11-288. 
Page 86 GAO-12-296 Foreclosure Mitigation

Figure 14: HAMP Permanent First-Lien Loan Modifications Completed by 

Calendar Quarter, 2009 through 2011

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-toincome 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

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-tofour unit residential property. In 

general, borrowers must be 

delinquent or default must be 

reasonably foreseeable (imminent 

default). 

Appendix II: Foreclosure Mitigation Efforts

Department of the Treasury
Page 87 GAO-12-296 Foreclosure Mitigation

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 HAMPmodified 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. 
Page 88 GAO-12-296 Foreclosure Mitigation

Figure 15: Fannie Mae Foreclosure Mitigation Actions Completed by 

Calendar Quarter, 2009 through 2011

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 

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.

Appendix II: Foreclosure Mitigation Efforts

Fannie Mae
Page 89 GAO-12-296 Foreclosure Mitigation

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 nonHAMP 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.
Page 90 GAO-12-296 Foreclosure Mitigation

Figure 16: Freddie Mac Foreclosure Mitigation Actions Completed by 

Calendar Quarter, 2009 through 2011

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 

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.

Appendix II: Foreclosure Mitigation Efforts

Freddie Mac
Page 91 GAO-12-296 Foreclosure Mitigation

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 Macspecified 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-toincome 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.
Page 92 GAO-12-296 Foreclosure Mitigation

Figure 17: FHA Formal Foreclosure Mitigation Actions Completed by 

Calendar Quarter, 2009 through 2011

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.

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. 

Appendix II: Foreclosure Mitigation Efforts

Federal Housing Administration (FHA)
Page 93 GAO-12-296 Foreclosure Mitigation

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.
Page 94 GAO-12-296 Foreclosure Mitigation

Figure 18: VA Foreclosure Mitigation Actions Completed by Calendar 

Quarter, 2009 through 2011

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, 

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.

Appendix II: Foreclosure Mitigation Efforts

Department of Veterans Affairs (VA)
Page 95 GAO-12-296 Foreclosure Mitigation

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 deedin-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.
Page 96 GAO-12-296 Foreclosure Mitigation

Figure 19: USDA Foreclosure Mitigation Actions Approved by Calendar 

Quarter, 2009 through 2011

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 

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-inlieu of foreclosure.

Appendix II: Foreclosure Mitigation Efforts

Department of Agriculture (USDA)
Page 97 GAO-12-296 Foreclosure Mitigation

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.
Page 98 GAO-12-296 Foreclosure Mitigation

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.

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. 

Appendix II: Foreclosure Mitigation Efforts

Refinance Programs Targeting Distressed Borrowers
Page 99 GAO-12-296 Foreclosure Mitigation

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 pastdue 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.

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.

Appendix II: Foreclosure Mitigation Efforts

Other Selected Efforts
Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Page 100 GAO-12-296 Foreclosure Mitigation

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.1 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.

We began with a sample of mortgages in the CoreLogic database that 

met certain requirements. Specifically, we restricted our analysis to firstlien 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 

 

1

Due to the proprietary nature of CoreLogic’s estimates of its market coverage, we could 

not assess the reliability of these estimates.

Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Data Source and 

Preparation
Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Page 101 GAO-12-296 Foreclosure Mitigation

origination.2 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.3 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.4 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.

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 

 

2

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.

3

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.

4

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.

Development of 

Algorithms 
Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Page 102 GAO-12-296 Foreclosure Mitigation

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.5

We placed each identified action into one of five broad categories:

capitalization accompanied by a rate reduction; capitalization only; rate 

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.

 

5

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).
Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Page 103 GAO-12-296 Foreclosure Mitigation

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 Rate screen Balance screen Additional screen

Capitalization and rate 

reduction

Exceed 12.5 basis points Increase between 0.5% and 50% None

Capitalization only NA Increase between 2.25% and 50% Performance: loan must be 

delinquent in prior month

Rate reduction only Exceed 100 basis points NA None

Balance decrease and rate 

reduction

Exceed 12.5 basis points Decrease between 2% and 50% Concurrent decrease in scheduled 

payment and loan must be 

delinquent in prior month

Balance decrease only NA Decrease between 4% and 50% Concurrent decrease in scheduled 

payment and loan must be 

delinquent in prior month

Source: GAO.

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 
Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Page 104 GAO-12-296 Foreclosure Mitigation

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).

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 2010.6

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 

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.

 

6

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. 

Robustness Test
Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Page 105 GAO-12-296 Foreclosure Mitigation

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

OCC: No OCC: Yes Total

GAO: No 511,405 19,268 530,673

GAO: Yes 2,240 415,367 417,607

Total 513,645 434,635 948,280

Source: GAO analysis of OCC data.

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 
Appendix III: Description of GAO’s 

Methodology to Identify Loan Modifications

Page 106 GAO-12-296 Foreclosure Mitigation

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
Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure

Page 107 GAO-12-296 Foreclosure Mitigation

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.

Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure
Appendix IV: Loans with Characteristics Associated with 

Increased Likelihood of Foreclosure

Page 108 GAO-12-296 Foreclosure Mitigation

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

Delinquent 60 days or 

more

Current LTV 125 

percent or higher

Local area unemployment 

of 10 percent or greater 

and current LTV of 125 

percent or higher

Mortgage interest rate 

that is 1.5 percentage 

points or higher above 

market rate

Origination credit score 

of 619 or below

Origination LTV of 100 

percent or higher

Date Number Percentage Number Percentage Number Percentage Number Percentage Number Percentage Number Percentage

June 

2009 1,439,054 6% 1,339,214 6% 846,113 4% 2,955,001 13% 1,402,229 6% 1,346,726 6%

June 

2010 1,801,816 8% 1,141,927 5% 871,140 4% 3,229,644 14% 1,300,627 6% 1,427,912 6%

June 

2011 1,583,498 7% 1,313,108 6% 880,509 4% 2,850,977 12% 1,189,051 5% 1,448,479 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.

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

Delinquent 60 days or 

more

Current LTV 125 

percent or higher

Local area unemployment 

of 10 percent or greater 

and current LTV of 125 

percent or higher

Mortgage interest rate 

that is 1.5 percentage 

points or higher above 

market rate

Origination credit 

score of 619 or below

Origination LTV of 100 

percent or higher

Date Number Percentage Number Percentage Number Percentage Number Percentage Number Percentage Number Percentage

June 

2009 361,809 35% 166,495 16% 104,209 10% 682,461 66% 541,995 53% 95,946 9%

June 

2010 355,769 39% 144,572 16% 108,023 12% 467,794 51% 487,183 53% 81,236 9%

June 

2011 312,392 38% 163,920 20% 109,394 13% 276,603 34% 443,315 54% 69,564 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.
Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure

Page 109 GAO-12-296 Foreclosure Mitigation

Table 6: Percentage of Prime Loans by Performance Status for All Loans and Characteristics Associated with Increased 

Likelihood of Foreclosure, June 2011 

Performance

All 

loans

Delinquent 

60 days or 

more

Current 

LTV 125 

percent or 

higher

Local area 

unemployment of 10 

percent or greater and 

current LTV of 125 

percent or higher

Mortgage interest 

rate that is 1.5 

percentage points 

or higher above 

market rate

Origination 

credit score 

of 619 or 

below

Origination 

LTV of 100 

percent or 

higher

Current 91% n/a 63% 63% 77% 68% 82%

30 to 59 days 

delinquent 3% n/a 5% 4% 5% 10% 5%

60 to 89 days 

delinquent 1% 14% 2% 2% 2% 4% 2%

90 days or more 

delinquent 3% 43% 14% 13% 7% 10% 6%

In foreclosure 3% 43% 16% 17% 9% 7% 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.

Table 7: Percentage of Subprime Loans by Performance Status for All Loans and Characteristics Associated with Increased 

Likelihood of Foreclosure, June 2011 

Performance

All 

loans

Delinquent

60 days or 

more

Current 

LTV 125 

percent or 

higher

Local area 

unemployment of 10 

percent or greater 

and current LTV of 

125 percent or higher

Mortgage interest 

rate that is 1.5 

percentage points 

or higher above 

market rate

Origination 

credit score of 

619 or below

Origination 

LTV of 100 

percent or 

higher

Current 53% n/a 36% 36% 42% 47% 50%

30 to 59 days 

delinquent 8% n/a 7% 7% 8% 10% 9%

60 to 89 days 

delinquent 4% 10% 4% 3% 3% 5% 4%

90 days or more 

delinquent 18% 46% 26% 26% 22% 20% 18%

In foreclosure 17% 44% 27% 28% 24% 18% 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.
Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure

Page 110 GAO-12-296 Foreclosure Mitigation

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

Foreclosure, June 2011 

Investor

All 

loans

Delinquent 

60 days or 

more

Current LTV 

125 percent 

or higher

Local area 

unemployment of 10 

percent or greater and 

current LTV of 125 

percent or higher

Mortgage interest 

rate that is 1.5 

percentage points 

or higher above 

market rate

Origination 

credit score 

of 619 or 

below

Origination 

LTV of 100 

percent or 

higher

Enterprises 66% 45% 52% 53% 66% 33% 30%

Ginnie Mae 19% 10% 12% 10% 13% 42% 53%

Portfolio 5% 19% 11% 10% 7% 16% 9%

Securitized other 6% 19% 18% 19% 9% 6% 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.

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

Foreclosure, June 2011 

Loan type

All 

loans

Delinquent 

60 days or 

more

Current LTV 

125 percent or 

higher

Local area 

unemployment of 10 

percent or greater and 

current LTV of 125 

percent or higher

Mortgage interest 

rate that is 1.5 

percentage points 

or higher above 

market rate

Origination 

credit score 

of 619 or 

below

Origination 

LTV of 100 

percent or 

higher

Conventional 78% 73% 83% 86% 85% 42% 44%

FHA 17% 23% 14% 12% 13% 51% 12%

VA 3% 3% 2% 2% 1% 6% 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.

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

All 

loans

Delinquent 

60 days or 

more

Current LTV 

125 percent or 

higher

Local area 

unemployment of 10 

percent or greater and 

current LTV of 125 

percent or higher

Mortgage interest 

rate that is 1.5 

percentage points 

or higher above 

market rate

Origination 

credit score of 

619 or below

Origination LTV 

of 100 percent 

or higher

Fixed 90% 76% 69% 67% 86% 94% 93%

ARM 5% 12% 17% 17% 5% 4% 6%

Hybrid 5% 12% 15% 16% 8% 2% 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.
Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure

Page 111 GAO-12-296 Foreclosure Mitigation

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

this description.

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

All 

loans

Delinquent 

60 days or 

more

Current LTV 

125 percent or 

higher

Local area 

unemployment of 10 

percent or greater and 

current LTV of 125 

percent or higher

Mortgage interest 

rate that is 1.5 

percentage points 

or higher above 

market rate

Origination 

credit score of 

619 or below

Origination 

LTV of 100 

percent or 

higher

Fixed 60% 46% 46% 46% 58% 56% 61%

ARM 19% 23% 26% 25% 17% 21% 26%

Hybrid 14% 23% 22% 23% 19% 17% 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.

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 Prime Subprime

One 67% 40%

Two 21% 33%

Three 9% 18%

Four 3% 7%

Five 0% 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.
Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure

Page 112 GAO-12-296 Foreclosure Mitigation

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 

Prime Subprime

Loans delinquent 60 days or more only 39% 14%

Loans delinquent 60 days or more with additional 

characteristics

Current LTV 125 percent or higher 27% 30%

Local area unemployment 10 percent or greater and current 

LTV 125 percent or higher

18% 20%

Mortgage interest rate that is 1.5 percentage points or higher 

above market rate 33% 44%

Origination credit score of 619 or below 16% 60%

Origination LTV 100 percent or higher 12% 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.

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 

Prime Subprime

Loans with current LTV 125 percent or higher only 11% 4%

Loans with current LTV 125 percent or higher with additional 

characteristics

Delinquent 60 days or more 32% 57%

Local area unemployment 10 percent or greater and current 

LTV 125 percent or higher

67% 67%

Mortgage interest rate that is 1.5 percentage points or higher 

above market rate

34% 40%

Origination credit score of 619 or below 8% 52%

Origination LTV 100 percent or higher 16% 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.
Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure

Page 113 GAO-12-296 Foreclosure Mitigation

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 

Prime Subprime

Loans with local area unemployment of 10 percent or greater 

and current LTV of 125 percent or higher only

40% 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 33% 58%

Mortgage interest rate that is 1.5 percentage points or higher 

above market rate

33% 40%

Origination credit score of 619 or below 7% 52%

Origination LTV 100 percent or higher 12% 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.

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 

Prime Subprime

Loans with mortgage interest rate that is 1.5 percentage points 

or higher above market rate only

61% 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 18% 50%

Current LTV 125 percent or higher 16% 24%

Local area unemployment 10 percent or greater and current 

LTV 125 percent or higher

10% 16%

Origination credit score of 619 or below 10% 58%

Origination LTV 100 percent or higher 9% 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.
Appendix IV: Loans with Characteristics 

Associated with Increased Likelihood of 

Foreclosure

Page 114 GAO-12-296 Foreclosure Mitigation

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

Prime Subprime

Loans with an origination credit score of 619 or below only 51% 32%

Loans with an origination credit score of 619 or below with 

additional characteristics

Delinquent 60 days or greater 21% 43%

Current LTV 125 percent or higher 9% 19%

Local area unemployment 10 percent or greater and current 

LTV 125 percent or higher

5% 13%

Mortgage interest rate that is 1.5 percentage points or higher 

above market rate

24% 36%

Origination LTV 100 percent or higher 13% 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.

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

Prime Subprime

Loans with origination LTV of 100 percent or higher only 62% 19%

Loans with origination LTV of 100 percent or higher with 

additional characteristics

Delinquent 60 days or greater 13% 41%

Current LTV 125 percent or higher 14% 33%

Local area unemployment 10 percent or greater and current 

LTV 125 percent or higher

7% 16%

Mortgage interest rate that is 1.5 percentage point or higher 

above market rate

17% 31%

Origination credit score of 619 or below 11% 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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 115 GAO-12-296 Foreclosure Mitigation

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.1

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.2

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 

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.

 

1

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. 

2

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 atrisk loan that enters the trial period plan under HAMP converts to a permanent 

modification; see GAO-11-288. 

Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of 

Modified Loans
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 116 GAO-12-296 Foreclosure Mitigation

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.

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.3

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.4 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.5

 

3

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.

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 

4

The CoreLogic data do not contain information on the servicers or the property address.

5

See appendix III for a description of the algorithm and results of identifying modified 

loans.

Data Used
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans 

Page 117 GAO-12-296 Foreclosure Mitigation

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.6 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.7

The second database we used contained information from servicers that 

participate in HAMP.

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.

8 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.9 Table 19 contains a complete 

list of variables from the CoreLogic and HAMP databases.

 

6

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.

7

The minimum and maximum values reported in table 20 reflect the upper and lower 

bounds that we used to construct the variables, when necessary.

8

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.

9

See Treasury, Making Home Affordable Program: Servicer Performance Report Through 

December 2010.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 118 GAO-12-296 Foreclosure Mitigation

Table 19: List of Variables from CoreLogic and HAMP Databases

Variable (unit used) Definition 

CoreLogic

data 

HAMP

data 

Modification outcome

Redefault in 6 months (%) Modified loan becomes 90 or more days past due (dpd) or in

foreclosure within 6 months

X X 

Redefault in 12 months (%) Modified loan becomes 90 or more days past due (dpd) or in 

foreclosure within 12 months

X X 

Redefault in 18 months (%) Modified loan becomes 90 or more days past due (dpd) or in 

foreclosure within 18 months

X X 

Modification actions

Payment change (%)a Percentage change in monthly payment of principal & interest X X 

PAYMENT DECREASE: <10% Payment reduction is less than10% X X 

PAYMENT DECREASE: 10% to 19% Payment reduction is between 10% and 19% X X 

PAYMENT DECREASE: 20% to 29% Payment reduction is between 20% and 29% X X 

PAYMENT DECREASE: 30% to 39% Payment reduction is between 30% and 39% X X 

PAYMENT DECREASE: 40% to 49% Payment reduction is between 40% and 49% X X 

PAYMENT DECREASE: 50% to 59% Payment reduction is between 50% and 59% X X 

PAYMENT DECREASE: 60% or more Payment reduction is 60% or higher X X 

RATE CHANGE (bps) Change in interest rate (bps) b X X 

Balance reduction (%) Percentage decrease in loan balance through forgiveness and/or 

forbearance 

c X 

Principal forgiveness (%) Percentage decrease in loan balance through forgiveness d X 

Principal forbearance (%) Percentage decrease in loan balance through forbearance e X 

Capitalization (%) Percentage increase in loan balance through capitalization f X X 

TERM CHANGE (months) Change in loan term g X X 

Borrower and loan characteristics at modification

CURRENT, AT MOD Loan is current at modification, less than 30 days past due X X 

DPD: 30, AT MOD Loan is 30 to 59 days past due at modification X X 

DPD: 60, AT MOD Loan is 60 to 89 days past due at modification X X 

DPD: 90, AT MOD Loan is 90 days or more past due at modification X X 

DPD: FCL, AT MOD Loan is in foreclosure at modification X X 

FICO CREDIT SCORE, AT MOD FICO credit score at modification X 

FICO: 350 to <550, AT MOD FICO greater than or equal to 350 and less than 550 at 

modification

X 

FICO: 550 to <580, AT MOD FICO greater than or equal to 550 and less than 580 at 

modification

X 

FICO: 580 to <620, AT MOD FICO greater than or equal to 580 and less than 620 at 

modification

X 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 119 GAO-12-296 Foreclosure Mitigation

Variable (unit used) Definition 

CoreLogic

data 

HAMP

data 

FICO: 620 to <660, AT MOD FICO greater than or equal to 620 and less than 660 at 

modification

X 

FICO: 660 to <680, AT MOD FICO greater than or equal to 660 and less than 680 at 

modification

X 

FICO: 680 to <700, AT MOD FICO greater than or equal to 680 and less than 700 at 

modification

X 

FICO: 700 to <750, AT MOD FICO greater than or equal to 700 and less than 750 at 

modification

X 

FICO: ≥750, AT MOD FICO greater than or equal to 750 at modification X 

CURRENT LTV (CLTV), AT MOD (%) Current loan-to-value (CLTV) ratio at modification h X X 

CLTV: 10 to <80 , AT MOD CLTV is greater than or equal to 10% and less than 80% at 

modification

X X 

CLTV: 80 to <95, AT MOD CLTV is greater than or equal to 80% and less than 95% at 

modification

X X 

CLTV: 95 to <100, AT MOD CLTV is greater than or equal to 95% and less than 100% at 

modification

X X 

CLTV: 100 to <115, AT MOD CLTV is greater than or equal to 100% and less than 115% at 

modification

X X 

CLTV: 115 to <125, AT MOD CLTV is greater than or equal to 115% and less than 125% at 

modification

X X 

CLTV: 125 to <150, AT MOD CLTV is greater than or equal to 125% and less than 150% at 

modification

X X 

CLTV: ≥150, AT MOD CLTV greater than or equal to 150% at modification X X 

DTIBE, BACKEND, AT MOD (%) Housing backend debt-to-income ratio (DTIBE), at modification h X 

DTIBE: 30 to <35, AT MOD DTIBE is greater than or equal to 30% and less than 35% at 

modification

X 

DTIBE: 35 to <40, AT MOD DTIBE is greater than or equal to 35% and less than 40% at 

modification

X 

DTIBE: 40 to <45, AT MOD DTIBE is greater than or equal to 40% and less than 45% at 

modification

X 

DTIBE: 45 to <50, AT MOD DTIBE is greater than or equal to 45% and less than 50% at 

modification

X 

DTIBE: 50 to <55, AT MOD DTIBE is greater than or equal to 50% and less than 55% at 

modification

X 

DTIBE: 55 to <65, AT MOD DTIBE is greater than or equal to 55% and less than 65% at 

modification

X 

DTIBE: ≥65, AT MOD DTIBE is greater than or equal to 65% at modification X 

HOUSE PRICES (% CHG) Percentage change in house prices after modification, zip code 

level

i X X 

CHG IN UNEMP RATE (%) Change in unemployment rate after modification, county level j X X 

RATE, AT MOD (bps) Interest rate at modification (basis points) X X 

TRIAL LENGTH ≥6 MONTHS If trial period plan is 6 months or more X 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 120 GAO-12-296 Foreclosure Mitigation

Variable (unit used) Definition 

CoreLogic

data 

HAMP

data 

MOD REQUIRES PMI If modification requires private mortgage insurance X 

Loan modification start 

MOD STARTED, 2009Q1 Modification started in 2009 Q1 X 

MOD STARTED, 2009Q2 Modification started in 2009 Q2 X 

MOD STARTED, 2009Q3 Modification started in 2009 Q3 X 

MOD STARTED, 2009Q4 Modification started in 2009 Q4 X X 

MOD STARTED, 2010Q1 Modification started in 2010 Q1 X X 

MOD STARTED, 2010Q2 Modification started in 2010 Q2 X X 

MOD STARTED, 2010Q3 Modification started in 2010 Q3 X X 

MOD STARTED, 2010Q4 Modification started in 2010 Q4 X X 

Borrower and loan characteristics at origination

FICO CREDIT SCORE, AT ORIGN Fair Isaac Corporation (FICO) credit score at loan origination X 

FICO: 350 to <550, AT ORIGN FICO greater than or equal to 350 and less than 550 at loan 

origination

X 

FICO: 550 to <580, AT ORIGN FICO greater than or equal to 550 and less than 580 at loan 

origination

X 

FICO: 580 to <620, AT ORIGN FICO greater than or equal to 580 and less than 620 at loan 

origination

X 

FICO: 620 to <660, AT ORIGN FICO greater than or equal to 620 and less than 660 at loan 

origination

X 

FICO: 660 to <680, AT ORIGN FICO greater than or equal to 660 and less than 680 at loan 

origination

X 

FICO: 680 to <700, AT ORIGN FICO greater than or equal to 680 and less than 700 at loan 

origination

X 

FICO: 700 to <750, AT ORIGN FICO greater than or equal to 700 and less than 750 at loan 

origination

X 

FICO: ≥750, AT ORIGN FICO greater than or equal to 750 at loan origination X 

LTV, AT ORIGN (%) Loan-to-value (LTV) ratio at origination h X X 

LTV: 10 to <70, AT ORIGN LTV greater than or equal to 10% and less than 70% at 

origination

X X 

LTV: 70 to <80, AT ORIGN LTV greater than or equal to 70% and less than 80% at 

origination

X X 

LTV: 80, AT ORIGN LTV equal to 80% at origination X X 

LTV: 81 to <90, AT ORIGN LTV greater than 80% and less than 90% at origination X X 

LTV: 90 to <100, AT ORIGN LTV greater than or equal to 90% and less than 100% at 

origination

X X 

LTV: ≥100, AT ORIGN LTV greater than or equal to 100% at origination X X 

RATE, AT ORIGN (bps) Interest rate at origination (basis points) X X 

LOAN BALANCE, AT ORIGN ($) Loan balance at origination, in current dollars X X 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans 

Page 121 GAO-12-296 Foreclosure Mitigation 

Variable (unit used) Definition 

CoreLogic

data 

HAMP

data 

Other: product characteristics 

INVESTOR: ENTERPRISES If loan is owned by government-sponsored enterprises (Fannie 

Mae or Freddie Mac) 

X X 

INVESTOR: PRIV-LABEL SEC (PLS) If loan is owned by non-agency private investors X X 

INVESTOR: PORTFOLIO If loan is owned by lender X X 

PRIME (vs. SUBPRIME) Prime loan = 1, subprime loan = 0 X 

ARM (vs. FIXED RATE) Adjustable rate (ARM) = 1, Fixed rate (FRM) = 0 X 

SINGLE FAMILY Single family housing units X X 

CONDO Condominiums, including PUDs (planned unit developments) X X 

OTHER HOUSING Other housing units, including cooperatives X X 

CONVENTIONAL Conventional loans (nongovernment owned or guaranteed loans) X 

FHA Federal Housing Administration (FHA) loans X 

VA Veterans Affairs (VA) X 

OWNER-OCCUPIED If owner-occupied housing versus a nonowner occupied X Xk

PURCHASE Loans for home purchase X 

REFI: CASH-OUT Loans for refinance, with cash-out X 

REFI: NO CASH-OUT Loans for refinance, without cash-out X 

REFI: UNKNOWN Loans for refinance, reason unknown X 

Loan origination year 

ORIGINATION YEAR, ≤2003 Loan originated in 2003 or before X X 

ORIGINATION YEAR, 2004 Loan originated in 2004 X X 

ORIGINATION YEAR, 2005 Loan originated in 2005 X X 

ORIGINATION YEAR, 2006 Loan originated in 2006 X X 

ORIGINATION YEAR, 2007 Loan originated in 2007 X X 

ORIGINATION YEAR, 2008 Loan originated in 2008 X Xl

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. 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 122 GAO-12-296 Foreclosure Mitigation

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

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).

Includes loans originated on January 1, 2009.

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.10

 

10We could not distinguish between principal forgiveness and principal forbearance in the 

CoreLogic data set.

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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 123 GAO-12-296 Foreclosure Mitigation

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

CoreLogic Data

A. All loans B. Prime loans C. Subprime loans

Variable N Mean Med Min Max N Mean Med N Mean Med

Modification outcome

REDEFAULT IN 6 MONTHS (%)a 91614 18 0 0 100 78300 17 0 13314 19 0 

Modification actions

PAYMENT CHANGE (%) 89814 -24 -22 -76 21 76871 -24 -22 12943 -25 -21

RATE CHANGE (bps) 80460 -299 -288 -1500 -8 68902 -289 -275 11558 -361 -313

BALANCE REDUCTION (%) 4598 -20 -16 -93 -2 4524 -20 -16 74 -16 -8 

CAPITALIZATION (%) 76883 6 5 0 50 65931 6 5 10952 8 6 

TERM CHANGE (months) 32414 96 102 5 200 28111 95 96 4303 101 114

Borrower and loan characteristics at modification

CURRENT, AT MOD 91614 0.07 0 0 1 78300 0.07 0 13314 0.12 0 

DPD: 30, AT MOD 91614 0.04 0 0 1 78300 0.03 0 13314 0.07 0 

DPD: 60, AT MOD 91614 0.05 0 0 1 78300 0.05 0 13314 0.07 0 

DPD: 90, AT MOD 91614 0.72 1 0 1 78300 0.75 1 13314 0.54 1 

DPD: FCL, AT MOD 91614 0.11 0 0 1 78300 0.10 0 13314 0.20 0 

CURRENT LTV (CLTV), AT MOD 

(%)b 91136 108 105 10 347 77838 107 105 13298 112 107

CLTV: 10 to <80, AT MOD 91136 0.17 0 0 1 77838 0.18 0 13298 0.15 0 

CLTV: 80 to <95, AT MOD 91136 0.18 0 0 1 77838 0.18 0 13298 0.19 0 

CLTV: 95 to <100, AT MOD 91136 0.07 0 0 1 77838 0.07 0 13298 0.07 0 

CLTV: 100 to <115, AT MOD 91136 0.21 0 0 1 77838 0.21 0 13298 0.20 0 

CLTV: 115 to <125, AT MOD 91136 0.11 0 0 1 77838 0.11 0 13298 0.09 0 

CLTV: 125 to <150, AT MOD 91136 0.15 0 0 1 77838 0.15 0 13298 0.16 0 

CLTV: ≥150, AT MOD 91136 0.11 0 0 1 77838 0.10 0 13298 0.14 0 

HOUSE PRICES (% CHG)c 91614 -2.32 -2.20 -28.92 26.48 78300 -2.43 -2.30 13314 -1.7 -1.6

CHG IN UNEMP RATE (%)d 91614 -0.04 -0.07 -11.13 12.67 78300 -0.08 -0.08 13314 0.2 0.1

RATE, AT MOD (bps) 91614 408.32 412.5 0.1 1725 78300 391 400 13314 508 504

Loan modification start 

MOD STARTED, 2009Q1 91614 0.09 0 0 1 78300 0.06 0 13314 0.24 0 

MOD STARTED, 2009Q2 91614 0.09 0 0 1 78300 0.08 0 13314 0.11 0 

MOD STARTED, 2009Q3 91614 0.07 0 0 1 78300 0.08 0 13314 0.07 0 

MOD STARTED, 2009Q4 91614 0.08 0 0 1 78300 0.08 0 13314 0.06 0 

MOD STARTED, 2010Q1 91614 0.17 0 0 1 78300 0.17 0 13314 0.15 0 

MOD STARTED, 2010Q2 91614 0.19 0 0 1 78300 0.19 0 13314 0.19 0 

MOD STARTED, 2010Q3 91614 0.15 0 0 1 78300 0.16 0 13314 0.12 0 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 124 GAO-12-296 Foreclosure Mitigation

A. All loans B. Prime loans C. Subprime loans

Variable N Mean Med Min Max N Mean Med N Mean Med

MOD STARTED, 2010Q4 91614 0.16 0 0 1 78300 0.17 0 13314 0.07 0 

Borrower and loan characteristics at origination

FICO CREDIT SCORE, AT ORIGN 84669 657 658 351 888 71470 666 668 13199 609 609

FICO: 350 to <550, AT ORIGN 84669 0.07 0 0 1 71470 0.05 0 13199 0.17 0 

FICO: 550 to <580, AT ORIGN 84669 0.06 0 0 1 71470 0.05 0 13199 0.14 0 

FICO: 580 to <620, AT ORIGN 84669 0.15 0 0 1 71470 0.12 0 13199 0.26 0 

FICO: 620 to <660, AT ORIGN 84669 0.23 0 0 1 71470 0.23 0 13199 0.25 0 

FICO: 660 to <680, AT ORIGN 84669 0.11 0 0 1 71470 0.12 0 13199 0.07 0 

FICO: 680 to <700, AT ORIGN 84669 0.11 0 0 1 71470 0.12 0 13199 0.05 0 

FICO: 700 to <750, AT ORIGN 84669 0.19 0 0 1 71470 0.21 0 13199 0.05 0 

FICO: ≥750, AT ORIGN 84669 0.09 0 0 1 71470 0.11 0 13199 0.01 0 

LTV, AT ORIGN (%)b 91571 83 80 10 200 78267 83 80 13304 82 80

LTV: 10 to <70, AT ORIGN 91566 0.14 0 0 1 78262 0.15 0 13304 0.11 0 

LTV: 70 to <80, AT ORIGN 91566 0.21 0 0 1 78262 0.21 0 13304 0.20 0 

LTV: 80, AT ORIGN 91566 0.21 0 0 1 78262 0.21 0 13304 0.22 0 

LTV: 81,to <90, AT ORIGN 91566 0.10 0 0 1 78262 0.08 0 13304 0.19 0 

LTV:90 to <100, AT ORIGN 91566 0.25 0 0 1 78262 0.26 0 13304 0.22 0 

LTV: ≥100, AT ORIGN 91566 0.09 0 0 1 78262 0.10 0 13304 0.06 0 

RATE, AT ORIGN (bps) 91610 638 650 1 1755 78299 616 638 13311 771 765

LOAN BALANCE, AT ORIGN ($) 90507 218878 189000 25000 729750 77256 222617 193500 13251 197079 166214

Other: product characteristics 

INVESTOR: ENTERPRISESe 91614 0.48 0 0 1 78300 0.55 1 13314 0.04 0 

INVESTOR: PRIV-LABEL SEC 

(PLS)e 91614 0.18 0 0 1 78300 0.15 0 13314 0.35 0 

INVESTOR: PORTFOLIOe 91614 0.22 0 0 1 78300 0.23 0 13314 0.20 0 

PRIME (vs. SUBPRIME) 91614 0.85 1 0 1 78300 1.00 1 13314 0.00 0 

ARM (vs. FIXED RATE) 91614 0.12 0 0 1 78300 0.12 0 13314 0.11 0 

SINGLE FAMILY 91614 0.80 1 0 1 78300 0.78 1 13314 0.87 1 

CONDO 91614 0.16 0 0 1 78300 0.17 0 13314 0.07 0 

OTHER HOUSING 91614 0.04 0 0 1 78300 0.04 0 13314 0.06 0 

CONVENTIONAL 91614 0.84 1 0 1 78300 0.81 1 13314 1.00 1 

FHA 91614 0.15 0 0 1 78300 0.18 0 13314 0.00 0 

VA 91614 0.01 0 0 1 78300 0.02 0 13314 0.00 0 

OWNER-OCCUPIED 91614 0.96 1 0 1 78300 0.96 1 13314 0.96 1 

PURCHASE 91614 0.44 0 0 1 78300 0.47 0 13314 0.28 0 

REFI: CASH-OUT 91614 0.26 0 0 1 78300 0.26 0 13314 0.24 0 

REFI: NO CASH-OUT 91614 0.15 0 0 1 78300 0.17 0 13314 0.05 0 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 125 GAO-12-296 Foreclosure Mitigation

A. All loans B. Prime loans C. Subprime loans

Variable N Mean Med Min Max N Mean Med N Mean Med

REFI: UNKNOWN 91614 0.14 0 0 1 78300 0.09 0 13314 0.43 0 

Loan origination year 

ORIGINATION YEAR, ≤2003 91614 0.14 0 0 1 78300 0.15 0 13314 0.10 0 

ORIGINATION YEAR, 2004 91614 0.08 0 0 1 78300 0.07 0 13314 0.16 0 

ORIGINATION YEAR, 2005 91614 0.15 0 0 1 78300 0.13 0 13314 0.30 0 

ORIGINATION YEAR, 2006 91614 0.23 0 0 1 78300 0.22 0 13314 0.26 0 

ORIGINATION YEAR, 2007 91614 0.30 0 0 1 78300 0.32 0 13314 0.17 0 

ORIGINATION YEAR, 2008 91614 0.10 0 0 1 78300 0.11 0 13314 0.01 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

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.

The data have many missing observations, especially for subprime loans, so the percentages do not 

add up to 1.

11 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.12

 

11The estimates do not include second liens.

Overall, unemployment 

rates declined by less than 1 percent (among prime loans rates 

12In general, loans carried by borrowers with FICO scores below 620 are regarded to be 

subprime.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 126 GAO-12-296 Foreclosure Mitigation

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 owneroccupied 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.

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.13

The HAMP database has certain limitations. The data were sometimes 

missing or questionable, as indicated by the Department of the 

Treasury.14

 

13A 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.

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 

14GAO-11-288

Comparison of CoreLogic 

and HAMP Data Sets
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 127 GAO-12-296 Foreclosure Mitigation

redefault is defined as 3 or more consecutive months of delinquency.15

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.

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.

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

CoreLogic and HAMP Data

CoreLogic data HAMP data

Variable N Mean Med Min Max N Mean Med Min Max

REDEFAULT IN 12 MONTHS (%)a 34801 26 0 0 100 341111 16 0 0 100

PAYMENT CHANGE (%) 33950 -30 -27 -76 0 341111 -37 -38 -80 0 

RATE CHANGE (bps) 33736 -322 -338 -1113 -8 336312 -399 -413 -1279 0 

BALANCE REDUCTION (%) 2183 -23 -18 -93 -2 NA NA NA NA NA

PRINCIPAL FORGIVENESS (%) NA NA NA NA NA 1954 -17 -18 -76 -1 

 

15Our reconstructed loan history was very close to Treasury’s; see Treasury, Making 

Home Affordable Program: Servicer Performance Report Through June 2011.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 128 GAO-12-296 Foreclosure Mitigation

CoreLogic data HAMP data

Variable N Mean Med Min Max N Mean Med Min Max

PRINCIPAL FORBEARANCE (%) NA NA NA NA NA 89318 -23 -20 -90 -1 

CAPITALIZATION (%) 30580 6 5 0 50 336844 5 4 0 30

TERM CHANGE (months) 12521 91 86 5 200 308608 37 1 -120 240

CURRENT, AT MOD 34801 0.03 0 0 1 277332 0.20 0 0 1 

DPD: 30, AT MOD 34801 0.02 0 0 1 277332 0.11 0 0 1 

DPD: 60, AT MOD 34801 0.05 0 0 1 277332 0.09 0 0 1 

DPD: 90, AT MOD (%) 34801 0.78 1 0 1 277332 0.56 1 0 1 

DPD: FCL, AT MOD (%) 34801 0.11 0 0 1 277332 0.05 0 0 1 

CLTV, AT MOD (%) 34663 109 106 10 347 276658 140 132 7 250

CLTV: 10 to <80, AT MOD 34663 0.16 0 0 1 276656 0.03 0 0 1 

CLTV: 80 to <95, AT MOD 34663 0.18 0 0 1 276656 0.04 0 0 1 

CLTV: 95 to <100, AT MOD 34663 0.07 0 0 1 276656 0.03 0 0 1 

CLTV: 100 to <115, AT MOD 34663 0.22 0 0 1 276656 0.18 0 0 1 

CLTV: 115 to <125, AT MOD 34663 0.11 0 0 1 276656 0.14 0 0 1 

CLTV: 125 to <150, AT MOD 34663 0.16 0 0 1 276656 0.22 0 0 1 

CLTV: ≥150, AT MOD 34663 0.11 0 0 1 276656 0.36 0 0 1 

LTV (LTV), AT ORIGN (%) 34799 83 80 0 200 264092 82 80 30 200

INTEREST RATE, AT MOD (bps) 34801 353 313 29 1590 341110 297 200 200 1249

INTEREST RATE, AT ORIGN (bps) 34801 639 650 1 1590 269859 666 663 200 1500

UPB, AT ORIGN ($) 34489 227487 201000 25000 728000 278184 241031 220000 25900 729750

ORIGINATION YEAR, ≤2003 34801 0.13 0 0 1 341111 0.07 0 0 1 

ORIGINATION YEAR, 2004 34801 0.07 0 0 1 341111 0.06 0 0 1 

ORIGINATION YEAR, 2005 34801 0.14 0 0 1 341111 0.17 0 0 1 

ORIGINATION YEAR, 2006 34801 0.23 0 0 1 341111 0.32 0 0 1 

ORIGINATION YEAR, 2007 34801 0.32 0 0 1 341111 0.32 0 0 1 

ORIGINATION YEAR, 2008b 34801 0.11 0 0 1 341111 0.07 0 0 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.

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 

Econometric Analysis
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 129 GAO-12-296 Foreclosure Mitigation

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.

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.16 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,17 an approach used to examine choices and evaluate 

various events or outcomes, to help determine these effects.18

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 

 

16See, 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. 

17Loan 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. 

18This 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). 

Model
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 130 GAO-12-296 Foreclosure Mitigation

redefaults.19

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.

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.

20 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.21

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.22

 

19This 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. 

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 

20The 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

21We use a threshold of 5-percent significance level for statistical significance. 

22We 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. 

Econometric estimates
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 131 GAO-12-296 Foreclosure Mitigation

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

Modification actions

PMT RATE a BAL b CAP c TERM d

Variables

e

(1) (2) (3) (4) (5) 

PAYMENT CHANGE -0.174***

(0.011)

RATE CHANGE -0.008***

(0.002)

BALANCE REDUCTION 0.156**

(0.066)

CAPITALIZATION 0.947***

(0.038)

TERM EXTENSION -0.012**

(0.005)

DPD: 30, AT MOD 8.590*** 7.379*** -22.619*** 5.447*** 4.661**

(0.881) (0.873) (6.345) (1.602) (2.018)

DPD: 60, AT MOD 8.901*** 7.917*** 9.053*** 2.660

(0.787) (0.774) (1.451) (1.780)

DPD: 90, AT MOD 18.191*** 16.892*** 3.916 17.116*** 14.885***

(0.577) (0.568) (3.808) (1.329) (1.379)

DPD: FCL, AT MOD 20.126*** 18.930*** 9.640** 15.471*** 17.463***

(0.715) (0.728) (4.806) (1.426) (1.564)

CLTV: 80 to <95, AT MOD 1.057* 1.527*** 1.529 1.757*** -0.017

(0.545) (0.559) (2.402) (0.634) (1.011)

CLTV: 95 to <100, AT MOD 1.942*** 3.022*** 5.724 3.231*** 1.905

(0.721) (0.732) (3.573) (0.833) (1.321)

CLTV: 100 to <115, AT MOD 2.349*** 3.278*** 2.694 3.076*** 2.771**

(0.621) (0.623) (3.025) (0.738) (1.088)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 132 GAO-12-296 Foreclosure Mitigation

Dependent variable: Redefault (90 DPD or more) within 6 months of loan modification, 0/1 x 100

Modification actions

PMT RATE a BAL b CAP c TERM d

Variables

e

(1) (2) (3) (4) (5) 

CLTV: 115 to <125, AT MOD 4.429*** 5.439*** 3.592 5.123*** 4.548***

(0.741) (0.737) (3.736) (0.877) (1.290)

CLTV: 125 to <150), AT MOD 5.579*** 6.954*** 7.228* 5.788*** 6.130***

(0.776) (0.767) (3.989) (0.942) (1.324)

CLTV: ≥150, AT MOD 9.519*** 11.200*** 5.167 9.758*** 9.563***

(0.957) (0.943) (5.126) (1.170) (1.624)

HOUSE PRICES (% CHG) -0.096** -0.057 -0.533* -0.094* -0.237***

(0.047) (0.048) (0.281) (0.052) (0.087)

CHG IN UNEMP RATE (%) 0.371** 0.285* 0.728 0.479** 0.345

(0.166) (0.170) (0.778) (0.189) (0.327)

RATE, AT MOD (bps) 0.021*** 0.027*** 0.069*** 0.036*** 0.044***

(0.001) (0.002) (0.010) (0.001) (0.002)

MOD STARTED, 2009Q2 1.298* 1.729** 22.259*** 0.623 3.176**

(0.676) (0.729) (8.283) (0.791) (1.303)

MOD STARTED, 2009Q3 0.809 1.760** 51.752*** -2.363*** -3.145**

(0.707) (0.757) (9.406) (0.818) (1.351)

MOD STARTED, 2009Q4 -11.960*** -10.345*** 21.620** -14.538*** -13.764***

(0.721) (0.769) (10.569) (0.802) (1.460)

MOD STARTED, 2010Q1 -10.207*** -8.408*** 26.205*** -12.552*** -11.443***

(0.675) (0.717) (7.209) (0.760) (1.339)

MOD STARTED, 2010Q2 -13.085*** -11.469*** 12.848* -15.056*** -14.907***

(0.665) (0.705) (7.111) (0.753) (1.294)

MOD STARTED, 2010Q3 -12.232*** -10.394*** 14.253* -14.860*** -13.966***

(0.743) (0.780) (7.362) (0.839) (1.421)

MOD STARTED, 2010Q4 -15.263*** -13.196*** 13.166* -18.066*** -17.463***

(0.708) (0.745) (7.338) (0.805) (1.351)

FICO: 550 to <580, AT ORIGN -3.616*** -3.684*** 5.726 -2.930*** -5.775***

(0.786) (0.809) (11.724) (0.844) (1.412)

FICO: 580 to <620, AT ORIGN -3.689*** -3.407*** -1.876 -2.767*** -4.802***

(0.664) (0.688) (9.894) (0.710) (1.194)

FICO: 620 to <660, AT ORIGN -4.935*** -4.770*** -1.375 -3.800*** -6.503***

(0.650) (0.676) (9.599) (0.697) (1.178)

FICO: 660 to <680, AT ORIGN -5.883*** -5.984*** -3.588 -4.426*** -7.171***

(0.738) (0.764) (9.667) (0.799) (1.356)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 133 GAO-12-296 Foreclosure Mitigation

Dependent variable: Redefault (90 DPD or more) within 6 months of loan modification, 0/1 x 100

Modification actions

PMT RATE a BAL b CAP c TERM d

Variables

e

(1) (2) (3) (4) (5) 

FICO: 680 to <700, AT ORIGN -5.953*** -6.122*** -1.812 -4.260*** -6.256***

(0.757) (0.781) (9.691) (0.825) (1.406)

FICO: 700 to <750, AT ORIGN -6.394*** -6.698*** -4.732 -4.527*** -8.550***

(0.715) (0.740) (9.590) (0.780) (1.323)

FICO: ≥750, AT ORIGN -7.322*** -7.692*** -5.822 -4.993*** -9.647***

(0.807) (0.826) (9.653) (0.906) (1.502)

LTV: 70 to <80, AT ORIGN -1.135** -1.165** 1.698 -1.182** -0.483

(0.525) (0.533) (2.268) (0.598) (1.013)

LTV: 80, AT ORIGN -0.841 -0.730 0.602 -0.526 -0.394

(0.566) (0.573) (2.534) (0.649) (1.091)

LTV: 81 to <90, AT ORIGN -1.386** -1.900*** 1.607 -1.116 0.683

(0.682) (0.690) (3.358) (0.778) (1.289)

LTV: 90 to <100, AT ORIGN -1.273* -1.662** 1.252 -0.978 -0.689

(0.673) (0.681) (3.369) (0.776) (1.263)

LTV: ≥100, AT ORIGN -0.837 -1.250 2.057 -0.376 -2.398

(0.819) (0.827) (4.224) (0.942) (1.489)

RATE, AT ORIGN (bps) -0.006*** -0.006*** -0.021*** -0.010*** -0.006***

(0.001) (0.001) (0.006) (0.001) (0.002)

UPB, AT ORIGN (LOG) 0.115 -0.387 -2.941 0.763 0.246

(0.444) (0.458) (2.674) (0.506) (0.883)

PRIME (vs. SUBPRIME) 1.958*** 1.954*** 5.384 5.103*** 5.618***

(0.531) (0.561) (7.333) (0.589) (1.049)

ARM (vs. FIXED RATE) 2.499*** 2.357*** 2.277 2.213*** 2.475***

(0.455) (0.462) (1.632) (0.529) (0.897)

CONDO 1.060** 0.786* 2.062 1.682*** 2.669***

(0.427) (0.432) (1.968) (0.477) (0.800)

OTHER HOUSING -0.804 -0.581 -2.911 -1.714* -1.779785

(0.824) (0.824) (4.164) (0.910) (1.497)

FHA -3.388*** -3.174*** -5.546 -3.110*** -7.529***

(0.565) (0.606) (8.440) (0.602) (1.073)

VA -11.630*** -11.198*** -3.606 -10.569*** -13.001***

(1.379) (1.384) (24.417) (1.451) (2.752)

OWNER-OCCUPIED -0.147 -0.051 -16.703*** 1.603* 1.105

(0.740) (0.785) (5.675) (0.840) (1.646)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 134 GAO-12-296 Foreclosure Mitigation

Dependent variable: Redefault (90 DPD or more) within 6 months of loan modification, 0/1 x 100

Modification actions

PMT RATE a BAL b CAP c TERM d

Variables

e

(1) (2) (3) (4) (5) 

REFI: CASH OUT -2.316*** -2.411*** -1.160 -1.557*** -2.130***

(0.398) (0.403) (1.967) (0.449) (0.787)

REFI: NO CASH OUT -1.912*** -1.855*** -3.411* -1.240** -1.601*

(0.444) (0.450) (2.026) (0.496) (0.853)

REFI: OTHER -4.454*** -4.277*** 5.485 -4.186*** -3.720***

(0.509) (0.520) (5.199) (0.560) (0.893)

Constant 11.087** 12.155** 24.530 -14.889** 0.607

(5.446) (5.728) (35.400) (6.315) (10.913)

Origination year fixed-effects Yes Yes Yes Yes Yes

Zip code fixed-effects Yes Yes Yes Yes Yes

Baseline redefault rate 18% 16% 11% 19% 19%

Mean value of mod action 24% 302 (bps) 20% 6% 99 months

Prob>F 0.000 0.000 0.000 0.000 0.000

Observations 81,556 73,215 4,262 69,847 28,656

R-squared 0.253 0.249 0.662 0.272 0.406

Adj. R-squared 0.105 0.0872 0.187 0.106 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

We discuss the results from the redefault model using the CoreLogic data 

set, which represents the universe of loans, using the estimates in table 

TERM=Term change (months)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 135 GAO-12-296 Foreclosure Mitigation

22. 23 We start with the effects of modification actions on the redefault 

rate.24

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 

 

23The results are generally consistent with Agarwal and others (2011a, 2011b).

24In 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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 136 GAO-12-296 Foreclosure Mitigation

analysis is relatively small for the result to be meaningful.25

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.

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.

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.26

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.

 

25Agarwal and others (2011b) also obtained statistically insignificant results, but Voicu and 

others (2011) using data for New York City, found significant results. 

26Agarwal and others (2011a) obtained a positive effect, but Agarwal and others (2011b) 

had an inconclusive outcome.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 137 GAO-12-296 Foreclosure Mitigation

House price depreciation: The redefault rates of loans are higher for 

higher CLTVs, as expected.27

Unemployment rate: The redefault rates of loans are higher in areas 

where the unemployment rate has increased since the modification, 

as expected.

Continued depreciation in house prices 

after the loan modification also increases the redefault rate.

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.28

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 

 

27The effects for the current LTV at modification are similar to Agarwal and others 

(2011b).

28The first quarter of 2009 is the reference category for the estimation.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 138 GAO-12-296 Foreclosure Mitigation

securitized loans.29

Adjustable Rate Mortgages (ARM): Loans with ARMs were more 

likely to redefault than those with fixed rates, as expected.

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.

30

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.

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 

 

29The 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.

30The effects are similar to Agarwal and others (2011a, 2011b).

Comparison of effects of loan 

modifications under different 

programs 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 139 GAO-12-296 Foreclosure Mitigation

changes in the modification actions based on the CoreLogic data 

representing the universe of loans.31

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.32

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.33

 

31We note that Voicu and others (2011) compared the effectiveness of HAMP and nonHAMP 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. 

32The 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.

33The inconclusive result for principal forgiveness is likely due to the fact that this 

modification action is used much less frequently compared to principal forbearance.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 140 GAO-12-296 Foreclosure Mitigation

Table 23: Comparison of Estimated Changes in Redefaults of Modified Loans within 

12 Months: CoreLogic versus HAMP Data Sets

Change in redefault rates 

(percentage points)

Variable CoreLogic data HAMP data

Modification type

PAYMENT DECREASE OF 30 PERCENT 

OF LOAN BALANCE -9 -10

RATE DECREASE OF 326 bps -6 -5 

BALANCE REDUCTION OF 23 PERCENT 1 -1 a

CAPITALIZATION OF 6 PERCENT 

b

8 8 

TERM EXTENSION OF 95 MONTHS -1 -4 a

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

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. 

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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 141 GAO-12-296 Foreclosure Mitigation

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

Modification actions

PMT RATE a BAL b CAP c TERM d

Variables

e

(1) (2) (3) (4) (5) 

PAYMENT CHANGE -0.305***

(0.024)

RATE CHANGE -0.017***

(0.004)

BALANCE REDUCTION 0.052

(0.139)

CAPITALIZATION 1.405***

(0.081)

TERM EXTENSION -0.014

(0.012)

DPD: 30, AT MOD 3.635 2.840 2.287 0.756

(2.555) (2.548) (4.613) (6.919)

DPD: 60, AT MOD 2.617 2.391 40.721 4.214 0.143

(2.112) (2.088) (27.776) (4.164) (5.870)

DPD: 90, AT MOD 16.609*** 16.053*** 39.111 14.644*** 14.391***

(1.766) (1.748) (26.534) (3.969) (5.295)

DPD: FCL, AT MOD 21.614*** 21.803*** 34.996 13.106*** 22.013***

(1.958) (1.956) (27.583) (4.121) (5.533)

CLTV: 80 to <95, AT MOD 0.677 1.695 -1.279 1.996 0.281

(1.127) (1.102) (5.302) (1.307) (2.073)

CLTV: 95 to <100, AT MOD 3.673** 5.368*** 10.131 5.419*** 4.254

(1.483) (1.452) (7.800) (1.686) (2.759)

CLTV: 100 to <115, AT MOD 3.047** 4.866*** 3.353 4.167*** 4.157*

(1.269) (1.220) (6.833) (1.503) (2.183)

CLTV: 115 to <125, AT MOD 6.433*** 8.975*** 6.516 7.672*** 6.927***

(1.499) (1.438) (8.440) (1.773) (2.612)

CLTV: 125 to <150, AT MOD 8.652*** 11.534*** 3.485 9.494*** 6.574**

(1.556) (1.479) (8.592) (1.892) (2.604)

CLTV: ≥150, AT MOD 15.546*** 19.321*** 1.314 16.132*** 12.912***

(1.918) (1.817) (11.033) (2.349) (3.208)

HOUSE PRICES (% CHG) -0.148 -0.157 -0.691 -0.150 -0.039

(0.150) (0.150) (1.210) (0.163) (0.295)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 142 GAO-12-296 Foreclosure Mitigation

Dependent variable: redefault (90 DPD or more) within 12 months of modification,0/1 x 100

Modification actions

PMT RATE a BAL b CAP c TERM d

Variables

e

(1) (2) (3) (4) (5) 

CHG IN UNEMP RATE (%) 0.041 -0.373 10.789* -0.950 0.858

(0.834) (0.833) (6.269) (0.905) (1.716)

RATE, AT MOD (bps) 0.022*** 0.035*** 0.111*** 0.054*** 0.051***

(0.003) (0.004) (0.028) (0.002) (0.005)

MOD STARTED, 2010Q1 0.025 0.272 18.345 -0.644 -0.468

(1.014) (1.017) (17.150) (1.084) (2.035)

MOD STARTED, 2010Q2 -5.325*** -5.341*** 1.953 -5.334*** -6.567***

(0.977) (0.981) (17.707) (1.047) (1.979)

FICO: 550 to <580, AT ORIGN -3.547** -3.074* 51.947** -3.223* -4.554

(1.660) (1.670) (25.946) (1.723) (2.807)

FICO: 580 to <620, AT ORIGN -5.918*** -5.057*** -10.356 -3.955*** -5.473**

(1.391) (1.405) (21.752) (1.446) (2.396)

FICO: 620 to <660, AT ORIGN -10.228*** -9.767*** -16.725 -7.788*** -11.653***

(1.359) (1.374) (20.584) (1.418) (2.363)

FICO: 660 to <680, AT ORIGN -13.030*** -12.613*** -14.521 -9.941*** -15.514***

(1.534) (1.544) (20.749) (1.616) (2.802)

FICO: 680 to <700, AT ORIGN -14.135*** -13.932*** -15.033 -12.193*** -14.358***

(1.552) (1.560) (20.716) (1.645) (2.852)

FICO: 700 to <750, AT ORIGN -14.441*** -14.037*** -21.381 -11.728*** -17.219***

(1.475) (1.485) (20.613) (1.560) (2.705)

FICO: ≥750, AT ORIGN -18.370*** -18.155*** -20.708 -15.670*** -21.966***

(1.656) (1.663) (20.577) (1.792) (3.111)

LTV: 70 to <80, AT ORIGN 0.008 -1.065 -2.761 -0.065 1.334

(1.036) (1.021) (5.060) (1.157) (2.103)

LTV: 80, AT ORIGN 0.612 -0.352 -5.876 0.335 0.008

(1.119) (1.101) (5.677) (1.253) (2.268)

LTV: 81,to <90, AT ORIGN 0.176 -0.861 0.878 0.241 3.975

(1.366) (1.347) (7.502) (1.510) (2.672)

LTV:90 to <100, AT ORIGN 0.483 -0.943 -0.157 0.191 1.085

(1.358) (1.333) (7.706) (1.527) (2.611)

LTV: ≥100, AT ORIGN 0.852 -0.701 -3.756 0.265 1.355

(1.670) (1.641) (9.412) (1.878) (3.181)

RATE, AT ORIGN (bps) -0.006** -0.005** -0.044*** -0.017*** -0.009*

(0.002) (0.003) (0.014) (0.003) (0.005)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 143 GAO-12-296 Foreclosure Mitigation

Dependent variable: redefault (90 DPD or more) within 12 months of modification,0/1 x 100

Modification actions

PMT RATE a BAL b CAP c TERM d

Variables

e

(1) (2) (3) (4) (5) 

UPB, AT ORIGN (LOG) 2.085** 1.352 -4.975 2.492** 4.329**

(0.954) (0.950) (6.150) (1.048) (1.970)

PRIME (vs. SUBPRIME) -0.078 1.159 50.351* 3.880*** 4.813**

(1.142) (1.162) (28.682) (1.192) (2.369)

ARM (vs. FIXED RATE) 5.079*** 5.016*** 2.643 3.988*** 5.282***

(0.939) (0.936) (3.683) (1.068) (1.972)

CONDO 0.061 0.022 0.816 0.007 2.399

(0.866) (0.859) (4.620) (0.942) (1.724)

OTHER HOUSING -1.054 -1.295 7.042 -2.176 0.232

(1.683) (1.663) (9.176) (1.802) (3.104)

FHA 2.449** 2.164* -75.761*** 2.110* 0.243

(1.208) (1.248) (22.451) (1.266) (2.403)

VA -5.163* -4.897 -3.104 -4.821

(3.070) (3.098) (3.211) (6.014)

REFI: CASH OUT -2.527*** -2.455*** -2.179 -2.115** -3.123*

(0.814) (0.809) (4.291) (0.884) (1.701)

REFI: NO CASH OUT -1.157 -1.165 -7.838* -0.428 -3.713**

(0.894) (0.889) (4.518) (0.979) (1.805)

REFI: OTHER -5.047*** -5.219*** -29.375* -4.769*** -3.011

(1.017) (1.022) (16.598) (1.075) (1.844)

CONSTANT -2.046 -3.192 4.668 -34.329** -45.151*

(11.690) (11.819) (86.617) (13.383) (24.626)

Origination year fixed-effects Yes Yes Yes Yes Yes

Zip code fixed-effects Yes Yes Yes Yes Yes

Baseline redefault rate 26% 25% 15% 27% 27%

Mean value of mod action 30% 326 bps 23% 6% 95months

Prob>F 0.000 0.000 0.000 0.000 0.000

Observations 30,683 30,508 2,046 27,717 10,914

R-squared 0.391 0.387 0.753 0.409 0.585

Adj. R-squared 0.125 0.120 0.0861 0.124 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 (%)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 144 GAO-12-296 Foreclosure Mitigation

b

RATE=Rate change (bps)

c

BAL=Balance reduction (%)

d

CAP=Capitalization (%)

e

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.

TERM=Term change (months)

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

Modification actions

Variables

PMT

(1) 

a RATE

(2) 

b PFGV

(3) 

c PFBR

(4) 

d CAP

(5) 

e TERM

(6) 

f

PAYMENT CHANGE -0.322***

(0.006)

RATE CHANGE -0.015***

(0.001)

PRINCIPAL FORGIVENESS 0.056

(0.154)

PRINCIPAL FORBEARANCE -0.157***

(0.013)

CAPITALIZATION 1.345***

(0.021)

TERM EXTENSION -0.046***

(0.001)

PFGV*PFBR -2.188 -6.893***

(2.608) (2.079)

DPD: 30, AT MOD 4.044*** 4.449*** 3.415 2.268** 4.133*** 4.175***
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 145 GAO-12-296 Foreclosure Mitigation

Dependent variable: redefault (90+ DPD) within 12 months of modification, 0/1 x 100

Modification actions

Variables

PMT

(1) 

a RATE

(2) 

b PFGV

(3) 

c PFBR

(4) 

d CAP

(5) 

e TERM

(6) 

f

(0.273) (0.270) (5.103) (0.966) (0.274) (0.278)

DPD: 60, AT MOD 4.419*** 4.663*** 3.194 3.562*** 4.127*** 4.666***

(0.317) (0.316) (5.307) (0.980) (0.319) (0.325)

DPD: 90, AT MOD 10.155*** 10.322*** 5.927* 7.095*** 5.966*** 10.327***

(0.250) (0.249) (3.529) (0.796) (0.260) (0.256)

DPD: FCL, AT MOD 13.396*** 10.764*** 10.584*** 4.314*** 12.817***

(0.419) (0.430) (0.974) (0.444) (0.432)

FICO: 550 to <580, AT MOD -5.669*** -5.610*** -5.772* -4.199*** -5.351*** -5.430***

(0.220) (0.220) (3.235) (0.573) (0.221) (0.230)

FICO: 580 to <620, AT MOD -7.726*** -7.679*** -6.593** -5.996*** -7.109*** -7.444***

(0.220) (0.220) (2.975) (0.592) (0.221) (0.229)

FICO: 620 to <660, AT MOD -9.254*** -9.310*** -5.065 -7.462*** -8.168*** -8.944***

(0.253) (0.252) (3.336) (0.726) (0.254) (0.260)

FICO: 660 to <680, AT MOD -10.296*** -10.292*** -12.297*** -7.560*** -8.686*** -10.008***

(0.376) (0.374) (4.691) (1.176) (0.378) (0.385)

FICO: 680 to <700, AT MOD -10.140*** -10.252*** -4.742 -7.319*** -8.171*** -9.872***

(0.407) (0.405) (4.894) (1.322) (0.410) (0.416)

FICO: 700 to <750, AT MOD -10.590*** -10.748*** -6.888* -5.865*** -8.496*** -10.065***

(0.315) (0.313) (3.961) (1.036) (0.319) (0.322)

FICO: ≥750, AT MOD -9.113*** -9.396*** -8.247** -5.980*** -7.102*** -8.491***

(0.328) (0.326) (4.098) (1.228) (0.333) (0.334)

CLTV: 80 to <95, AT MOD 1.549** 1.316** 0.817 1.926*** 1.612***

(0.607) (0.606) (4.160) (0.614) (0.620)

CLTV: 95 to <100, AT MOD 1.875*** 1.520** 13.601 3.216 2.143*** 1.900***

(0.683) (0.681) (50.401) (4.312) (0.689) (0.698)

CLTV: 100 to <115, AT MOD 3.836*** 3.156*** 0.729 4.396 4.016*** 3.825***

(0.606) (0.605) (34.451) (3.975) (0.613) (0.621)

CLTV: 115 to <125, AT MOD 5.316*** 4.619*** -0.280 4.294 5.399*** 5.162***

(0.655) (0.653) (33.686) (4.055) (0.661) (0.672)

CLTV: 125 to <150, AT MOD 6.583*** 5.897*** -2.838 7.429* 6.624*** 6.464***

(0.690) (0.689) (32.826) (4.125) (0.697) (0.708)

CLTV: ≥150, AT MOD 8.184*** 7.469*** 0.394 10.679** 8.505*** 8.092***

(0.753) (0.752) (33.041) (4.229) (0.760) (0.773)

DTIBE: 35 to <40, AT MOD -0.719** -0.606* 1.254 -1.882** -0.112 -0.613*
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 146 GAO-12-296 Foreclosure Mitigation

Dependent variable: redefault (90+ DPD) within 12 months of modification, 0/1 x 100

Modification actions

Variables

PMT

(1) 

a RATE

(2) 

b PFGV

(3) 

c PFBR

(4) 

d CAP

(5) 

e TERM

(6) 

f

(0.314) (0.313) (3.443) (0.854) (0.315) (0.321)

DTIBE: 40 <45, AT MOD -0.550* -0.197 -0.703 -2.020** 0.588* -0.117

(0.312) (0.311) (3.495) (0.853) (0.312) (0.318)

DTIBE: 45 to <50, AT MOD -0.595* -0.280 -2.782 0.170 0.705** -0.250

(0.319) (0.319) (3.460) (0.864) (0.320) (0.326)

DTIBE: 50 to <55, AT MOD -0.992*** -0.931*** -7.020* -0.738 0.345 -0.657*

(0.336) (0.335) (3.933) (0.887) (0.337) (0.343)

DTIBE: 55 to <65, AT MOD -1.312*** -1.199*** -2.013 -0.946 0.099 -1.163***

(0.281) (0.281) (3.542) (0.750) (0.282) (0.288)

DTIBE: ≥65, AT MOD -1.657*** -2.006*** -3.272 -2.570*** -0.764*** -1.863***

(0.239) (0.239) (3.311) (0.627) (0.241) (0.245)

HOUSE PRICES (% CHG) 0.010 0.022 4.184*** 0.186 0.025 0.030

(0.043) (0.043) (1.618) (0.117) (0.043) (0.044)

CHG IN UNEMP RATE (%) 0.137 0.158 -12.656 -0.184 0.072 0.216

(0.224) (0.224) (15.177) (0.672) (0.224) (0.230)

RATE, AT MOD (bps) 0.003*** 0.018*** 0.020** 0.023*** 0.037*** 0.024***

(0.001) (0.001) (0.009) (0.002) (0.001) (0.001)

TRIAL LENGTH ≥6 MONS 0.778*** 0.775*** 7.829 1.089** -1.070*** 0.130

(0.178) (0.177) (7.752) (0.552) (0.179) (0.185)

MOD REQUIRES PMI 1.105*** 1.380*** -14.947 0.359 1.467*** 1.224***

(0.249) (0.249) (10.472) (0.946) (0.250) (0.258)

MOD STARTED, 2010Q1 0.318 0.442 -11.125 2.138** -0.230 0.502

(0.314) (0.316) (9.411) (0.936) (0.316) (0.324)

MOD STARTED, 2010Q2 0.439 0.668** 2.455** 0.004 0.931***

(0.311) (0.313) (0.957) (0.313) (0.320)

LTV: 70 to <80, AT ORIGN 1.399*** 1.299*** 0.384 0.962 1.284*** 1.371***

(0.243) (0.242) (2.798) (0.756) (0.243) (0.250)

LTV: 80, AT ORIGN 2.082*** 2.190*** 3.036 1.334* 1.859*** 2.136***

(0.255) (0.254) (3.085) (0.752) (0.256) (0.263)

LTV: 81 to <90, AT ORIGN 2.996*** 2.814*** 7.908 1.119 2.086*** 2.318***

(0.321) (0.321) (7.359) (0.880) (0.322) (0.335)

LTV: 90 to <100, AT ORIGN 3.585*** 3.415*** 23.065** 1.276 2.612*** 2.878***

(0.311) (0.311) (11.156) (0.872) (0.312) (0.323)

LTV: ≥100, AT ORIGN 4.874*** 4.916*** -5.685 0.989 4.119*** 4.238***
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 147 GAO-12-296 Foreclosure Mitigation

Dependent variable: redefault (90+ DPD) within 12 months of modification, 0/1 x 100

Modification actions

Variables

PMT

(1) 

a RATE

(2) 

b PFGV

(3) 

c PFBR

(4) 

d CAP

(5) 

e TERM

(6) 

f

(0.333) (0.333) (13.573) (0.965) (0.334) (0.347)

RATE, AT ORIGN (bps) 0.006*** 0.007*** -0.047** -0.001 -0.009*** 0.001

(0.001) (0.001) (0.020) (0.001) (0.001) (0.001)

UPB, AT ORIGN (LOG) 2.082*** 1.641*** 1.944 2.767*** 2.250*** 2.016***

(0.242) (0.243) (4.701) (0.739) (0.243) (0.250)

INVESTOR: PRIV-LABEL SEC 3.125*** 3.328*** -6.781 0.763 1.522*** 1.580***

(0.221) (0.221) (9.231) (0.601) (0.221) (0.235)

INVESTOR: PORTFOLIO -0.267 -0.642** -1.373*** -0.579**

(0.270) (0.270) (0.274) (0.284)

CONDO 1.687*** 1.336*** -7.933 1.766** 1.894*** 1.597***

(0.304) (0.303) (6.017) (0.824) (0.305) (0.315)

OTHER HOUSING 0.468 0.388 -28.101** -2.324* 0.561 0.498

(0.383) (0.380) (13.093) (1.362) (0.384) (0.407)

CONSTANT -15.997*** -19.942*** 39.377 -38.042*** -33.487*** -26.933***

(2.946) (2.996) (69.676) (9.650) (2.951) (3.027)

Origination year fixed-effects Yes Yes Yes Yes Yes Yes

Zip code fixed-effects Yes Yes Yes Yes Yes Yes

Baseline redefault rate 15% 15% 8% 12% 15% 15%

Mean value of mod action 37% 396 bps 17% 24% 5% 35 months

Prob>F 0.000 0.000 0.000 0.000 0.000 0.000

Observations 253,320 249,434 1,702 32,153 250,538 233,347

R-squared 0.150 0.144 0.613 0.300 0.153 0.148

Adj. R-squared 0.0884 0.0815 0.103 0.0916 0.0915 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)
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 148 GAO-12-296 Foreclosure Mitigation

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 Estimate a

PAYMENT DECREASE: 10% to 19% -3.790***

(0.478)

PAYMENT DECREASE: 20% to 29% -3.814***

(0.532)

PAYMENT DECREASE: 30% to 39% -6.559***

(0.627)

PAYMENT DECREASE: 40% to 49% -7.984***

(0.689)

PAYMENT DECREASE: 50% to 59% -7.541***

(0.764)

PAYMENT DECREASE: 60% OR MORE -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

Trade-off between reductions 

in monthly payments and 

redefault rates 

The reference category for the payment decrease is “less than 10 percent.” 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 149 GAO-12-296 Foreclosure Mitigation

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

Modification Action and Size of Payment Reduction

Payment 

reduction

(1)

Rate

reduction

(2)

Balance 

reduction 

(3)

Capitalization 

(4)

Term 

extension 

(5)

Monthly payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline redefault 16% 15% 11% 16% 18%

Less than 10% 20% 18% 20% 16% 16% 4% 22% 20% 26% 16%

10% to 19% 17% 21% 16% 21% 15% 3% a 17% 21% 20% 19%

20% to 29% 16% 20% 16% 20% 20% 3% a 17% 20% 20% 19%

30% to 39% 14% 15% 13% 15% 9% 4% a 14% 16% 14% 12%

40% to 49% 12% 12% 12% 13% 9% 12% a 12% 13% 12% 14%

50% to 59% 13% 8% 12% 9% 10% 36% a 12% 7% 12% 14%

60% or more 13% 6% 12% 6% 11% 38% a 10% 4% 14% 6%

Observations 71856 (100%) 69226 (96%) 3936 (5%) 59557 (83%) 26683 (37%)

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

a

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 fig. 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 fig. 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.

The estimate is not statistically significant at the 10 percent level.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 150 GAO-12-296 Foreclosure Mitigation

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

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-toincome (DTI) ratio.

We find that payment reductions are more effective in reducing redefault 

rates for borrowers with high CLTV ratios, especially those with ratios 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 151 GAO-12-296 Foreclosure Mitigation

above 125 percent (see table 28 and fig. 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

CLTV: less than 95% 

(1) 

CLTV: 95%-114% 

(2) 

CLTV: 115-124% 

(3) 

CLTV: 125% or more 

(4) 

Monthly payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline redefault 13% 16% 17% 18%

Less than 10% 16% 16% 19% 19% 19% 21% 25% 18%

10% to 19% 14% 20% 16% 23% 16% 23% a 20% 19%

20% to 29% 14% 20% 16% 20% 20% 18% a 19% 20%

30% to 39% 12% 15% 14% 14% 16% 14% a 16% 15%

40% to 49% 9% 12% 13% 12% 14% 12% 13% 14%

50% to 59% 11% 9% 13% 8% 12% 7% 14% 8%

60% or more 11% 7% 14% 5% 12% 5% 13% 6%

Observations 24522 (34%) 20402 (28%) 7802 (11%) 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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 152 GAO-12-296 Foreclosure Mitigation

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

Payment reductions are more effective in reducing redefault rates for 

borrowers in areas where the unemployment rate increased after 

modification (see table 29 and fig. 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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 153 GAO-12-296 Foreclosure Mitigation

Table 29: Predicted Redefault Rates and Distribution of Payment Reductions (within 

6 months of modification), by Unemployment Rate and Size of Payment Reduction

Increase in unemployment 

ratea 

(1) 

Decrease in unemployment 

rate 

(2) 

Monthly payment 

reduction Redefault Loans Redefault Loans

Baseline redefault 18% 13%

Less than 10% 23% 19% 18% 17%

10% to 19% 20% 22% 13% 20%

20% to 29% 20% 23% 13% 18%

30% to 39% 15% 14% 12% 15%

40% to 49% 14% 11% 11% 14%

50% to 59% 14% 7% 12% 10%

60% or more 14% 5% 11% 7%

Observations 33435 (47%) 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.” 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 154 GAO-12-296 Foreclosure Mitigation

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

Payment reductions are more effective for borrowers who are 90 days or 

more past due (see table 30 and fig. 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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 155 GAO-12-296 Foreclosure Mitigation

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 

DPD: < 60 

(1) 

DPD: 60-89 

(2) 

DPD: >=90 

 (3) 

DPD: FCL 

(4) 

Monthly payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline redefault 9% 9% 17% 19%

Less than 10% 9% 14% 15% 12% 22% 18% 19% 25%

10% to 19% 8% 26% a 12% 24% a 18% 20% 21% 19% a

20% to 29% 10% 31% a 7% 24% 18% 18% 18% 15% a

30% to 39% 8% 13% a 5% 18% 15% 15% 18% 14% a

40% to 49% 9%a 8% 7% 13% 13% 13% 19% 12% a

50% to 59% 9%a 5% 8% 6% a 14% 9% 18% 8% a

60% or more 15% 3% 8% 3% a 13% 6% 14% 7% a

Observations 8543 (12%) 4393 (6%) 51970 (72%) 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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 156 GAO-12-296 Foreclosure Mitigation

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

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.

Robustness Checks
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 157 GAO-12-296 Foreclosure Mitigation

First, we estimated the model for different durations after the 

modifications—12 and 18 months—instead of 6 months.34 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.35 This would help to reduce potential survivorship 

bias.36 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.37

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.38

 

34This 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).

We identified two groups of loans—relatively highquality 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 

35See, for example, Adelino and others (2010).

36Essentially, 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.

37See, for example, Adelino and others (2010).

38See, 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. 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 158 GAO-12-296 Foreclosure Mitigation

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.39 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 

fig. 25).40

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.41

 

39The 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.

40Because 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. 

41See, 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. 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 159 GAO-12-296 Foreclosure Mitigation

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

Payment 

reduction 

(1) 

Rate 

reduction 

(2) 

Balance 

reduction 

(3) 

Capitalization 

(4) 

Term 

extension 

(5) 

Monthly 

payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline 

redefault 14% 13% 10% 15% 17%

Less than 10% 19% 12% 18% 10% 11% 4% 21% 13% 26% 9%

10% to 19% 16% 16% 16% 17% 16% 3% a 17% 17% 20% 10%

20% to 29% 16% 21% 15% 22% 19% 2% a 17% 22% 22% 20%

30% to 39% 13% 18% 12% 18% 7% 4% a 13% 20% 14% 14%

40% to 49% 11% 15% 10% 16% 9% 12% a 11% 16% 13% 18%

50% to 59% 11% 10% 11% 11% 9% 37% a 11% 8% 13% 20%

60% or more 11% 7% 10% 7% 11% 38% a 8% 4% 14% 9%

Observations 49526 47677 3809 39727 16694

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

a

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

The estimate is not statistically significant at the 10 percent level.

Payment reduction 

(1) 

Rate reduction

(2) 

Capitalization 

(3) 

Term extension 

(4) 

Monthly payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline redefault 17% 17% 16% 19%

Less than 10% 18% 17% 17% 13% 23% 20% 18% 20% 

10% to 19% 20% 22% a 19% 22% a 20% 18% a 33% 14%

20% to 29% 18% 22% a 17% 23% a 16% 18% 19% 18% a

30% to 39% 17% 14% a 16% 14% a 14% 15% 18% 16% a

40% to 49% 16% 11% a 16% 11% a 12% 12% 14% 17% a

50% to 59% 16% 7% a 16% 8% a 11% 9% 15% 12% a

60% or more 14% 7% a 14% 8% a 8% 9% 4% 3% a

Observations 11470 10921 9166 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.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 160 GAO-12-296 Foreclosure Mitigation

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

Payment 

reduction

(1) 

Rate 

reduction 

(2) 

Balance 

reduction

(3) 

Capitalization 

(4) 

Term 

extension 

(5) 

Monthly 

payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline 

redefault 15% 15% 9% 16% 18%

Less than 10% 20% 11% 20% 9% 0% 1% 22% 13% 29% 7% 

10% to 19% 17% 15% 17% 15% 16% 2% a 18% 17% 23% 9%

20% to 29% 16% 20% 16% 21% 12% 2% a 17% 22% 23% 19% 

30% to 39% 14% 18% 14% 18% 7% 3% a 15% 20% 16% 11% 

40% to 49% 12% 16% 12% 17% 6% 11% a 12% 17% 14% 18% 

50% to 59% 13% 11% 12% 12% 8% 39% a 13% 8% 14% 24% 

60% or more 12% 8% 12% 8% 11% 43% a 8% 4% 15% 11%

Observations 32950 31811 3078 27463 11426

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

a

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

The estimate is not statistically significant at the 10 percent level.

Payment 

reduction 

(1) 

Rate 

reduction 

(2) 

Balance 

reduction 

(3) 

Capitalization 

(4) 

Term 

extension 

(5) 

Monthly 

payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline redefault 12% 12% 11% 13% 14%

Less than 10% 17% 13% 15% 10% 14% 7% 20% 13% 31% 9% 

10% to 19% 13% 19% 13% 19% 16% 4% a 14% 17% 18% 12%

20% to 29% 15% 24% 14% 25% a 0% 4% a 15% 22% 20% 24% 

30% to 39% 11% 17% 10% 18% 0% 8% a 12% 20% 10% 21% 

40% to 49% 8% 14% 7% 14% 17% 20% a 8% 15% 6% 20% 

50% to 59% 9% 8% 8% 9% 19% 35% a 9% 7% 7% 10% 

60% or more 10% 5% 9% 5% 12% 23% a 9% 4% 9% 4%

Observations 14448 13928 568 10900 4470

Source: GAO analysis of data from CoreLogic and its Home Price Index and the Bureau of Labor Statistics.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 161 GAO-12-296 Foreclosure Mitigation

a

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

The estimate is not statistically significant at the 10 percent level.

Payment reduction 

(1) 

Rate reduction 

(2) 

Capitalization 

(3) 

Term extension 

(4) 

Monthly payment 

reduction Redefault Loans Redefault Loans Redefault Loans Redefault Loans

Baseline redefault 22% 22% 21% 19%

Less than 10% 26% 45% 26% 44% 26% 45% 27% 31% 

10% to 19% 20% 40% 19% 41% 19% 40% a 18% 48%

20% to 29% 16% 11% 16% 11% 15% 10% 15% 15% 

30% to 39% 11% 3% 11% 3% 12% 3% 7% 4% 

40% to 49% 4% 1% 5% 1% 7% 1% 5% 1% 

50% to 59% 0% 0%b 0% 0%b 0% 0%b 0% 0%

60% or more

b

12% 0% a b 13%a 0%b 12% 0% a b NA NA

Observations 9939 9728 9770 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

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

The values are less than 1 percent.

Payment reduction 

(1) 

Rate reduction 

(2) 

Capitalization 

(3) 

Monthly payment reduction Redefault Loans Redefault Loans Redefault Loans

Baseline redefault 15% 15% 15%

Less than 10% 15% 39% 13% 38% 14% 40% 

10% to 19% 18% 42% a 19%a 43% 20%a 42% 

20% to 29% 11% 14% a 9% 14% a 6% 14% a

30% to 39% 10% 3% a 27% 3% a 16% 3% a

40% to 49% 0% 1% 0% 1% 0% 1% 

50% to 59% 21% 0% a b 0% 0%b a NA NA

60% or more 19%a 0%b 2%a 0%b 0%a 0%

Observations

b

921 900 894

Source: GAO analysis of data from CoreLogic and its Home Price Index and the Bureau of Labor Statistics.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 162 GAO-12-296 Foreclosure Mitigation

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.

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

and Size of Payment Reduction

Adelino, M., K. Gerardi, and P. Willen. “Why Don’t Lenders Renegotiate 

More Home Mortgages? The Effect of Securitization,” Federal Reserve 

Bank of Atlanta, Working Paper no. 2009-17a, 2010.

Bibliography 
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 163 GAO-12-296 Foreclosure Mitigation

Agarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, and D. 

Evanoff. “The Roleof Securitization in Mortgage Renegotiation” 

Unpublished manuscript. 2011a.

Agarwal, S., G. Amromin, I. Ben-David, S. Chomsisengphet, and D. 

Evanoff. “Market-Based Loss Mitigation for Troubled Mortgages Following 

the Financial Crisis,” Federal Reserve Bank of Chicago, WP 2011-03. 

2011b.

Ambrose, B. and C. Capone, Jr., “Cost-Benefit Analysis of Single-Family

Foreclosure Alternatives.” Journal of Real Estate Finance and 

Economics, 13: 105-120. 1996.

Ambrose, B. and C. Capone. “The Hazard Rates of First and Second 

Defaults.” Journal of Real Estate Finance and Economics, 20(3): 275-

293. 2000.

Amherst Securities Group LP. .”Modification Success—What Have We 

Learned?” Amherst Mortgage Insight (April 5, 2011a).

Amherst Securities Group LP. “National Mortgage Servicing Standards 

and Conflicts of Interests” Testimony of Laurie Goodman, Amherst 

Securities Group to the Subcommittee on Housing, Transportation and 

Community Development of the Senate Committee on Banking, Housing 

and Urban Affairs. (May 11, 2011b).

Capone, Jr., C., and A. Metz. “Mortgage Property Rights and Post-Default 

Incentives.” Unpublished manuscript, available at 

http://ssrn.com/abstract=1802448.2004.

Foote, C., K. Gerardi, and P. Willen (FGW) “Negative Equity and 

Foreclosure: Theory and Evidence,” Journal of Urban Economics, 64(2): 

234-245. 2008.

Foote, C., K. Gerardi, L. Goette, and P. Willen (FGGW), “Reducing 

Foreclosures: No Easy Answers,” Federal Reserve Bank of Boston, 

Public Policy Discussion Papers, no. 09-2. 2009.

Gerardi, C., A. Shapiro, and P. Willen (GSW), “Subprime Outcomes: 

Risky Mortgages, Homeownership Experiences, and Foreclosures,” 

Federal Reserve Bank of Boston, Working Paper no. 07-15. 2007.
Appendix V: Description of GAO’s 

Econometric Analysis of Redefault of Modified 

Loans

Page 164 GAO-12-296 Foreclosure Mitigation

Gerardi, C. and Wenli Li. “Mortgage Foreclosure Prevention Efforts,” 

Federal Reserve Bank of Atlanta Economic Review, vol. 95, no. 2. 2007.

GAO. Troubled Asset Relief Program: Treasury Continues to Face 

Implementation Challenges and Data Weaknesses in Its Making Home 

Affordable Program. GAO-11-288. Washington, D.C.: Mar. 17, 2011.

Karikari, John. “Why Homeowners’ Documentation Went Missing Under 

the Home Affordable Mortgage Program (HAMP)?: An Analysis of 

Strategic 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.
Appendix VI: Comments from the Department 

of Treasury

Page 165 GAO-12-296 Foreclosure Mitigation

Appendix VI: Comments from the 

Department of Treasury
Appendix VI: Comments from the Department 

of Treasury

Page 166 GAO-12-296 Foreclosure Mitigation
Appendix VII: Comments from the Department 

of Housing and Urban Development

Page 167 GAO-12-296 Foreclosure Mitigation

Appendix VII: Comments from the 

Department of Housing and Urban 

Development
Appendix VII: Comments from the Department 

of Housing and Urban Development

Page 168 GAO-12-296 Foreclosure Mitigation
Appendix VIII: Comments from the Department of Veterans 

Affairs

Page 169 GAO-12-296 Foreclosure Mitigation

Appendix VIII: Comments from the 

Department of Veterans Affairs
Appendix VIII: Comments from the Department of Veterans 

Affairs

Page 170 GAO-12-296 Foreclosure Mitigation
Appendix VIII: Comments from the Department of Veterans 

Affairs

Page 171 GAO-12-296 Foreclosure Mitigation
Appendix IX: Comments from the Federal 

Housing Finance Agency

Page 172 GAO-12-296 Foreclosure Mitigation

Appendix IX: Comments from the Federal 

Housing Finance Agency
Appendix IX: Comments from the Federal 

Housing Finance Agency

Page 173 GAO-12-296 Foreclosure Mitigation
Appendix IX: Comments from the Federal 

Housing Finance Agency

Page 174 GAO-12-296 Foreclosure Mitigation
Appendix X: GAO Contact and Staff 

Acknowledgments

Page 175 GAO-12-296 Foreclosure Mitigation

Mathew J. Scirè, (202) 512-8678, or sciremj@gao.gov

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.

Appendix X: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
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