Servicer and Spatial Heterogeneity of Loss Mitigation Practices in Soft Housing Markets

Publication Date

March 2012

Author(s)

Lei Ding, Roberto G. Quercia

Client/Funder

Ford Foundation

Read the Publication

Researchers examine loan modification practices in rustbelt and sand states, and neighborhoods differently affected by the foreclosure crisis and find that servicers modify loans less frequently where they are needed the most — in neighborhoods hardest hit by the crisis.

While loan modifications are being used as a way to help troubled borrowers keep their homes and to stabilize housing markets, not much is known about the ways in which specific servicer-related factors affect the likelihood of modifications as well as their ultimate success.

Researchers examine recent loan modification practices in two types of soft or declining markets: rustbelt and sand states, and neighborhoods differently affected by the foreclosure crisis.

Using a large sample of nonprime loans, they find significant variations in the loss mitigation approaches adopted by servicers: some are significantly more likely to modify troubled loans while several others are less likely to do so. Loan modifications are less frequent where they are needed the most in those neighborhoods hardest hit by the crisis.

This considerable variation in resolution practices across servicers and neighborhoods likely reflects a number of structural obstacles as well as the absence of a uniform approach to loss mitigation.