Lenders and servicers generally would want to work with borrowers to avoid foreclosure, which, according to industry estimates, can lead to a loss of as much as 40 percent to 50 percent of the unpaid mortgage balance. Loss mitigation techniques that preserve homeownership are typically less costly than foreclosure, particularly when applied before default.
Borrowers who have been current in their payments but could default after reset may  1  See Randall S. Kroszner (1999), “Can the Financial Markets Privately Regulate Risk? The Development of Derivatives Clearing Houses and Recent Over-the-Counter Innovations,” Journal of Money, Credit, and Banking, vol. 31 (August), p. 600. 2  See Kroszner, “Can the Financial Markets Privately Regulate Risk?”, p. 601.