Loan modifications over 40% increase foreclosure risk, study finds.
Mortgage modifications were promoted during the housing crisis to help homeowners avoid foreclosure. A study on modified FHA loans found that heavily modified loans have a higher risk of re-default compared to loans that never defaulted. The risk of re-default is less influenced by traditional factors for modified loans. Payment reductions between 10% to 30% are most effective in reducing re-default risk, but beyond 40% can actually increase the risk. Lenders should consider these findings when designing loan modification policies.