With principal reduction modifications a key component of the preliminary term sheet that was recently released by the State Attorneys General, there has been more attention placed on the success of these loan modification programs and their accompanying moral hazard issues, analysts said.

Amherst Securities Group (ASG) analysts made a case for principal reductions in a report released today. They said that since negative equity drives defaults, principal reduction is the most successful kind of modification. In the report, analysts also offered some recommendations on how to better align incentives to mitigate strategic defaults. 

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.