New Proposal for Preventing Foreclosures

Winter 2009

Columbia Law School Professor Edward R. Morrison recently co-wrote a proposal that aims to stem foreclosures through loan modifications.

The plan specifically addresses privately securitized mortgages, which account for more than 50 percent of foreclosures. Research shows that when these mortgages become delinquent, servicers of securitized mortgages opt for foreclosure over mortgage modification much more often than private lenders who service their own mortgages.

The solution, according to Morrison and his co-authors, is to facilitate modification, instead of foreclosure, by compensating servicers who modify mortgages and by removing legal constraints that inhibit modification.

By the authors’ estimates, the plan would prevent nearly 1 million foreclosures over three years, at a cost of no more than $10.7 billion.