3 With these costs in mind, the Federal Reserve, together with the other federal banking agencies, has issued guidance urging lenders and servicers to pursue workout arrangements, when feasible and prudent, as an alternative to foreclosure.
In some cases, temporary adjustments to payments may not be sufficient, and more-permanent reductions in interest rates or an extension of the loan term may be required to help a borrower. In some situations, lenders and servicers may want to consider using principal writedowns as a way to reduce re-default risk or to facilitate a refinancing. The Federal Reserve's outreach efforts inform its policymaking.