While second liens are stumbling blocks in many modifications, when the interests of the first and second mortgages are aligned it often results in a principal reduction, according to Laura Goodman, senior managing director at Amherst Securities Group.

"When a bank owns and services the first and second, 37% of those modifications have gotten some kind of principal reduction," she told an American Securitization Forum (ASF) conference in Washington recently. In an interview she noted these principal reductions occurred on loans on the balance sheets of banks, not securities.

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