These proposals are not mutually exclusive and could be used in combination. Each would require some commitment of public funds. To be effective, loan modifications should aim to put borrowers into mortgages that they can afford over the longer term.
During more normal times, many homeowners could be helped with a temporary repayment plan – for example, a deferral of interest payments for a period. But under the current circumstances, with house prices declining and credit tight, permanent loan modifications will often be needed to create sustainable mortgages and keep people in their homes.