In changing the terms of the mortgage, servicers may start with changing the interest rate or adjusting the maturity to make the payments more affordable, but they also need to consider whether writing down loan principal amounts make sense. Doing the latter may be more effective at reducing the probability of redefault.
6 These design principles for modifications are all included in the Homeownership Preservation Policy recently adopted by the Federal Reserve Board. 7 The Federal Reserve will apply this policy to the residential mortgage assets held by the special purpose vehicles established by the Federal Reserve to facilitate the acquisition of Bear Stearns by JPMorgan Chase and to assist the American International Group, Inc.