February 1, 2004
Joint Center for Housing Studies, Harvard University

Technological innovations in the mortgage industry have had profound impacts on every step in the homeownership process. Much of the literature has focused on the front end of the process, particularly the impacts of automated underwriting systems. Literature on loan servicing has focused on the borrower option to default with little attention paid to degrees of default or loss mitigation efforts used by lenders. This research examines the innovations that have occurred in the last ten years in mortgage servicing and their impacts on foreclosure incidence and loss mitigation. We find strong support that recent changes in mortgage servicing policies and tools for resolving problem loans have reduced costs and helped keep delinquent borrowers in their homes. In particular, low- and moderate-income borrowers who enter a repayment plan have a 68 percent reduction in the likelihood of home loss; among all loans, the risk of home loss is decreased by 80 percent.

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