Achieving Effective Mortgage Modifications: The Importance of Household Characteristics

This analysis uses the Panel Study of Income Dynamics (PSID) from 2009 to 2013 to model the likelihood that a mortgage modification can be obtained by homeowners with mortgages that are in foreclosure, who have defaulted on one or more payments, or who have not yet defaulted on a payment but who are concerned they may do so in the immediate future. In addition, for those households who obtain a mortgage modification, the likelihood that the modification eliminates their mortgage problem is also estimated. Consistent with the existing literature, we find little direct evidence (significance of categorical variables identifying the borrowers race/ethnicity, sex/marital status, etc.) that being in a protected or otherwise potentially at risk class influences the likelihood that these households will get a mortgage modification, or that it will effectively deal with their payment problem. However, the analysis does find substantial indirect evidence that many of these households are at disadvantage because of differences in their socioeconomic characteristics. Some interesting finding are that independent variables which capture educational attainment, access to the internet, financial experience, and early identification of potential mortgage payment problems all have significant impacts on the likelihood that households will receive effective mortgage modifications.