A word of caution: the regulator’s perspective One word of caution before concluding my remarks – while currency derivatives are hedging products, and therefore, risk mitigating instruments, the absence or inadequacy of robust risk management practices and oversight surrounding this activity could have disastrous consequences.
To date, permanent modifications that have occurred have typically involved a reduction in the interest rate, while reductions of principal balance have been quite rare. The preference by servicers for interest rate reductions could reflect familiarity with that technique, based on past episodes when most borrowers' problems could be solved that way.