Volume 18, Issue 2
2007

Richard K. Green

Stegman et al. show that high-quality servicing can help keep borrowers who would normally be considered subprime from experiencing foreclosure. This comment discusses the results Stegman et al. present and also explains how loan modification helped alleviate past mortgage crises--specifically, how the housing finance crisis during the Great Depression was solved largely by the federal government, using its access to capital markets. The government purchased mortgages that had balloon payments and were in default, reinstated them, and then repackaged them to become long-term, fixed-payment, self-amortizing mortgages. Similarly, after government policy created the S&L problem, government intervention helped alleviate the resulting mortgage crisis.

 

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