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Mortgage modifications and loan performance


  • Danne, Christian
  • McGuinness, Anne

    (Central Bank of Ireland)


This paper studies the determinants of receiving a loan modification and the factors explaining repayment after mortgage modification using a unique Irish dataset. Compared to previous studies, our dataset allows us to observe borrower and loan characteristics at the time the borrower experiences payment difficulties and to directly observe the outcome of the renegotiation process. The results show that current borrower characteristics rather than loan characteristics matter for receiving a permanent modification and making full payment after modification. A higher mortgage repayment to income ratio, higher household leverage, and higher household expenditure reduce the probability of receiving a permanent modification and the probability of full payment after modification. In addition, both unemployment and divorce prior to engaging in mortgage renegotiations, reduce the probability of receiving a permanent modification and the payment performance after modification. The change in borrowers mortgage repayment and thus their subsequent mortgage affordability is the key driver of a successful modification, irrespective of the modification type.

Suggested Citation

  • Danne, Christian & McGuinness, Anne, 2016. "Mortgage modifications and loan performance," Research Technical Papers 05/RT/16, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:05/rt/16

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    References listed on IDEAS

    1. Agarwal, Sumit & Amromin, Gene & Ben-David, Itzhak & Chomsisengphet, Souphala & Evanoff, Douglas D., 2011. "The role of securitization in mortgage renegotiation," Journal of Financial Economics, Elsevier, vol. 102(3), pages 559-578.
    2. Tracy, Joseph & Wright, Joshua, 2016. "Payment changes and default risk: The impact of refinancing on expected credit losses," Journal of Urban Economics, Elsevier, vol. 93(C), pages 60-70.
    3. McGuinness, Anne, 2014. "Mortgage Repayments after Permanent Modification," Economic Letters 07/EL/14, Central Bank of Ireland.
    4. Adelino, Manuel & Gerardi, Kristopher & Willen, Paul S., 2013. "Why don't Lenders renegotiate more home mortgages? Redefaults, self-cures and securitization," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 835-853.
    5. Kennedy, Gerard & McIndoe-Calder, Tara, 2012. "The Irish Mortgage Market: Stylised Facts, Negative Equity and Arrears," Quarterly Bulletin Articles, Central Bank of Ireland, pages 85-108, February.
    6. repec:aea:aejpol:v:9:y:2017:i:4:p:167-91 is not listed on IDEAS
    7. Kelly, Robert & McCann, Fergal, 2016. "Some defaults are deeper than others: Understanding long-term mortgage arrears," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 15-27.
    8. Been, Vicki & Weselcouch, Mary & Voicu, Ioan & Murff, Scott, 2013. "Determinants of the incidence of U.S. Mortgage Loan Modifications," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3951-3973.
    9. J. Michael Collins & Maximilian D. Schmeiser & Carly Urban, 2013. "Protecting Minority Homeowners: Race, Foreclosure Counseling and Mortgage Modifications," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(2), pages 289-310, July.
    10. Andreas Fuster & Paul S. Willen, 2017. "Payment Size, Negative Equity, and Mortgage Default," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 167-191, November.
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    Cited by:

    1. McCann, Fergal, 2017. "Resolving a Non-Performing Loan crisis: The ongoing case of the Irish mortgage market," Research Technical Papers 10/RT/17, Central Bank of Ireland.
    2. McCann, Fergal, 2017. "Mortgage modifications in Ireland: a recent history," Economic Letters 16/EL/17, Central Bank of Ireland.
    3. Lydon, Reamonn & McIndoe-Calder, Tara, 2017. "The great Irish (de)leveraging 2005-14," Working Paper Series 2062, European Central Bank.
    4. McCann, Fergal, 2017. "Borrower-lender engagement during the Irish mortgage arrears crisis," Economic Letters 17/EL/17, Central Bank of Ireland.

    More about this item


    Mortgage; modification; arrears; banking;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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