, counselors, community development specialists, and policymakers. a particular focus of the fed's efforts has been the mitigation of the costs to communities of high rates of foreclosure. for example, we have partnered with neighborworks america on a neighborhood stabilization project and helped them develop responses to community needs as well as train local leaders. servicers of mortgages in securitized pools must abide by the pooling and servicing agreements, which state what modifications may be prohibited but provide limited guidance about what types of modifications investors would consider to be appropriate. see larry cordell, karen dynan, andreas lehnert, nellie liang, and eileen mauskopf ( 2008 ), " the incentives of mortgage servicers : myths and realities ", finance and economics discussion series 2008 - 46 ( washington : board of governors of the federal reserve system, november ). see board of governors of the federal reserve system, federal deposit insurance corporation, office of the comptroller of the currency, and office of thrift supervision ( 2008 ), " interagency statement on meeting the needs of creditworthy borrowers ", joint press release, november 12. in addition, hope now has been an important source of data on loss - mitigation activity. the loan - level data that they plan to provide in the future will be useful for analyzing the relative effectiveness of alternative strategies for loan modifications. beyond these efforts, two government programs to facilitate loan modifications have been authorized, both through the federal housing administration ( fha ). the fhasecure program has provided long - term fixed - rate mortgages to borrowers facing a rise in payments due to an interest rate reset. another, more recent program, dubbed hope for homeowners ( h4h ), allows lenders to refinance a delinquent borrower into a new, fha - insured fixed - rate mortgage if the lender writes down the mortgage balance to create some home equity for the borrower and pays an up - front insurance premium. in exchange for being put " above water " on the mortgage, the borrower is required to share any subsequent appreciation of the home with the government. although the basic structure of the h4h program is appealing, some lenders have expressed concerns about its complexity and cost, including the requirement in many cases to undertake substantial principal write - downs. as a result, participation has thus far been low. in response to these concerns, the board

amount to 10 to 15 percent of the loan balance ; furthermore, the discount in value due to foreclosure status can be an additional 5 to 15 percent. 8 however, despite the substantial costs imposed by foreclosure, anecdotal evidence suggests that some foreclosures are continuing to occur even in cases in which the narrow economic interests of the lender would appear to be better served through modification of the mortgage. this apparent market failure owes in part to the widespread practice of securitizing mortgages, which typically results in their being put into the hands of third - party for evidence that concentrations of foreclosures lead to lower house prices throughout the neighborhood, see, for example, william c. apgar, mark duda, and rochelle nawrocki gorey ( 2005 ), " the municipal cost of foreclosures : a chicago case study ", housing finance policy research paper 2005 - 1 ( minneapolis, minn. : homeownership preservation foundation, february ), www. 995hope. org / content / pdf / apgar _ duda _ study _ full _ version. pdf ; and john p. harding, eric rosenblatt, and yao vincent ( 2008 ), " the contagion effect of foreclosed properties ", social science research network working paper 1160354 ( july ). to be sure, policy should not attempt to keep house prices from falling sufficiently to stabilize the demand for housing. but preventing avoidable foreclosures does not block necessary adjustments. indeed, failing to prevent such foreclosures may heighten the risk that house prices will move lower than they would otherwise need to go. see j. p. morgan ( 2008 ), " sos - summary of subprime, alt - a, prime jumbo ", global structured finance research ( november 2 ) ; and credit suisse ( 2008 ), " deep dive into subprime mortgage severity ", fixed income research report ( june 19 ). see " deep dive ", note 8. servicers rather than those of a single owner or lender. the rules under which servicers operate do not always provide them with clear guidance or the appropriate incentives to undertake economically sensible modifications. 9 the problem is exacerbated because some modifications may benefit some tranches of the securities more than others, raising the risk of investor lawsuits. more generally, the sheer volume of delinquent loans has overwhelmed the