Each distressed mortgage case must be triaged and mapped into a proposed long-term sustainable solution which is (i) matched to the circumstances of the borrower, (ii) offers a better overall prospect of recovery for the bank, taking a realistic view of the probabilities involved, in particular (iii) taking account of the need for the modified payment schedule to be incentive compatible for the borrower given the availability of the PIA and revised bankruptcy rules and other options; and (iv) it should minimise moral hazard.
To be sure, the triage process needs to start with the question: is this a distressed case, or one in which the borrower does have the capacity to come back on track?