7 shows the incidence of junior liens ( or piggyback loans ), often an indicator of little borrower equity at the time of purchase. the greater use of these mortgages in the west and east coasts presumably reflects higher house prices in those regions ; again, the geographical pattern suggests that the use of piggyback loans may also have contributed to the recent rise in delinquencies and foreclosures. 8 what are the implications of these relationships, particularly the linkage of mortgage payment problems and falling house prices? loan servicers are used to dealing with mortgage delinquencies related to life events such as unemployment or illness, with the most common approaches being a temporary repayment plan or the folding of missed payments into the principal balance. a widespread decline in home prices, by contrast, is a relatively novel phenomenon, and lenders and servicers will have to develop new and flexible strategies to deal with this issue. in some cases, when the source of the problem is a decline of the value of the home well below the mortgage's principal balance, the best solution may be a writedown of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the federal housing administration or another lender. to be unemployment rate data are from the bureau of labor statistics. for example, see gerardi, shapiro, and willen ( 2007 ). displayed is the annual percentage change in the office of federal housing enterprise oversight price index for each county from the end of 2006 to the end of 2007. several different series measure home price changes. the index compiled by the office of federal housing enterprise oversight uses the values of homes whose mortgages were purchased by fannie mae or freddie mac. information on non - owner occupiers comes from home mortgage disclosure act ( hmda ) data. hmda is implemented by regulation c ( 12 cfr 203 ) of the federal reserve board. for more information about hmda, see avery, brevoort, and canner ( 2007 ). for details about the technique used to identify piggyback loans and for more information about their use, see avery, brevoort, and canner ( 2007 ). effective, such programs must be tightly targeted to borrowers at the highest risk of foreclosure, as measured, for example, by debt - to - income ratio or by the extent to which the mortgage is " underwater. " finding the right balance

are unlikely to want to hold onto a property whose value has depreciated significantly, and some borrowers – perhaps because they were put into an inappropriate loan or because personal circumstances have changed – cannot realistically sustain homeownership. however, if a foreclosure is preventable, and the borrower wants to stay in the home, the economic case for trying to avoid foreclosure is strong. because foreclosures impose high costs, including legal and administrative costs as well as the costs of leaving the property vacant for a possibly extended period, both the borrower and the lender often are better off avoiding foreclosure. moreover, it is important to recognize that the costs of foreclosure may extend well beyond those borne directly by the borrower and the lender. clusters of foreclosures can destabilize communities, reduce the property values of nearby homes, and lower municipal tax revenues. at both the local and national levels, foreclosures add to the stock of homes for sale, increasing downward pressure on home prices in general. in the current environment, more - rapid declines in house prices may have an adverse impact on the broader economy and, through their effects on the valuation of mortgage - related assets, on the stability of the based on servicer data from first american loanperformance. financial system. thus, finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy. to determine the appropriate public - and private - sector responses to the rise in mortgage delinquencies and foreclosures, we need to better understand the sources of this phenomenon. in good times and bad, a mortgage default can be triggered by a life event, such as the loss of a job, serious illness or injury, or divorce. however, another factor is now playing an increasing role in many markets : declines in home values, which reduce homeowners'equity and may consequently affect their ability or incentive to make the financial sacrifices necessary to stay in their homes. on the principle that a picture is worth a thousand words, federal reserve staff, using detailed, county - by - county information on mortgage performance, have developed a series of " heat maps, " which summarize the incidence of serious mortgage delinquencies across the nation as well as some of the key drivers of loan performance. as the examples will make clear, the figures use warmer colors – orange and red – to